Never a good sign to show weakness when you claim to be controlling a key commodity market and expect to escape some sort of punishment. But that’s what the OPEC+ group did with its extension of its production caps until well into 2025—down went prices on Monday, thereby making all OPEC members poorer for at least a session.
Sunday’s news saw West Texas Intermediate crude oil down 3.7% at $US74.11 per barrel, while the global marker, Brent, fell 3.5% to $US78.26. The session’s fall continued the declines for both crudes of the past two months.
OPEC+’s decision (which is really aimed at benefiting Saudi Arabia and Russia) was to extend the October 2022 production cuts and the voluntary reductions of 1.65 million barrels per day through the end of 2025. That will keep production cuts totaling 3.6 million barrels per day in place through the end of 2025.
OPEC+ members will extend additional voluntary reductions of 2.2 million barrels per day through the end of September before phasing them out on a monthly basis by September 2025. The moves are aimed at supporting market stability, the cartel said.
That’s effectively a decision to return oil to the market, which is an admission of weakness and what traders seized upon on Monday and will continue to push on to cut prices. The extra barrels will come from Saudi Arabia (which is feeling the pinch and reportedly slashing at its huge spending programs).
The weakening price and end result of the OPEC+ decision will see Russia come under growing pressures with its finances bleeding away.
“This monthly increase can be paused or reversed subject to market conditions,” the OPEC+ said. The United Arab Emirates’ required production was raised by 300,000 barrels per day, to be phased in beginning January 2025 through the end of September.
The UAE had threatened to go its own way, according to media reports late last week. The fear was that if the UAE broke away, other members might follow, such as Iraq.
Analysts pointed out that the UAE’s raise to its 2025 output quota could provide it “justification to continue to overproduce” and see other members to allow output to drift higher.
Monday’s prices are only 3.5% to 4% above the start of year levels.