OPEC+ members led by Saudi Arabia and Russia agreed on Sunday to extend voluntary oil output cuts of 2.2 million barrels a day into the second quarter, giving extra support to the market amid concerns over global growth and rising output outside the group.
Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, said it would extend its voluntary cut of one million barrels a day (b/d) through the end of June, leaving its output at around nine million barrels a day.
Russia, which leads OPEC allies collectively known as OPEC+, will cut oil production and exports by an extra 471,000 barrels a day in the second quarter. Russian Deputy Prime Minister Alexander Novak gave new figures showing that cuts from production will make up a rising proportion of the measure.
Oil has found support in 2024 from rising geopolitical tensions and Houthi attacks on Red Sea shipping, although concern about economic growth has weighed. While OPEC+ was widely expected to keep the cuts in place, Russia’s announcement could bolster prices further.
“There was a surprise from Russia,” said UBS analyst Giovanni Staunovo, who called the developments largely expected.
“If the Russian cuts are fully implemented, additional barrels would be removed from the market. So that is a surprise move no one expected and could lift prices,” he added.
Brent crude settled US$1.64 higher, or 2 per cent, at US$83.55 a barrel on Friday, up more than 8 per cent so far this year.
OPEC+ members announced the cuts individually on Sunday and OPEC later issued a statement confirming the 2.2 million barrels-a-day total. Saudi state news agency SPA said the cuts would be reversed gradually, according to market conditions.
“The decision sends a message of cohesion and confirms that the group is not in a hurry to return supply volumes, supporting the view that when this finally happens, it will be gradual,” analysts at investment bank Jefferies said in a report.
OPEC+ in November had agreed to the voluntary cuts totalling about 2.2 million barrels a day for the first quarter, led by Saudi Arabia rolling over a cut it had first made in July.
“The rollover was anticipated but extending it to the end of the second quarter might come as a surprise,” said Tamas Varga of oil broker PVM. “The market is expected to open stronger.”
For the second quarter, Iraq will extend its 220,000 barrels-a-day output cut, UAE will keep in place its 163,000 barrels-a-day output cut and Kuwait will maintain its 135,000 barrels-a-day output cut, the three OPEC producers said in separate statements. Algeria also said it would cut by 51,000 barrels a day and Oman by 42,000 barrels a day.
Kazakhstan said it will extend its voluntary cuts of 82,000 barrels a day through the second quarter.
OPEC+ has implemented a series of output cuts since late 2022 to support the market amid rising output from the United States and other non-member producers and worries over demand as major economies grapple with high interest rates.
The total OPEC+ pledged cuts since 2022 stand at about 5.86 million barrels a day, equal to about 5.7 per cent of daily world demand, according to Reuters calculations.
Sources told Reuters last week that OPEC+ would consider extending the latest round of output cuts into the second quarter, with one saying it was “likely.”
The oil demand outlook is uncertain for this year. OPEC expects another year of relatively strong demand growth of 2.25 million barrels a day, led by Asia, while the International Energy Agency expects much slower growth of 1.22 million barrels a day.
In a further headwind for OPEC+, the IEA also expects oil supply to grow to a record high of about 103.8 million barrels a day this year, almost entirely driven by producers outside OPEC+, including the United States, Brazil and Guyana.