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OPEC+ maintains production cuts amid surplus oil market

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The online meeting of OPEC+, which is scheduled to be held today, is expected to be easy and should finish within a few hours. This is because the key decisions have already been drafted, with only the customary exchange of pleasantries among members remaining. It is likely that they will agree to extend the current production cuts well into 2025, given the absence of significant signs pointing to genuine progress in oil demand in the near future.

The organization should find solace in the fact that none of its members are calling for an increase in their quota. This is largely due to the financial constraints and conditions faced by all, as there is a collective understanding that any increase in crude oil production could exacerbate the ongoing weakening of oil prices, resulting in worse outcomes. The decision to continue with the current crude oil production cut of 5.86 million barrels was reached in the last few days.

This includes fixed agreed cuts of 3.66 million barrels and voluntary reductions of two million barrels by certain members. This arrangement is set to persist for the remainder of the year, possibly extending into the first half of 2025. There seems to be surplus volume in the oil market, with significant volume available as spare capacity, awaiting future demand. Today, OPEC+ finds itself unable to do anything to push the oil prices beyond $90 a barrel, given the current range of $82-$84 and the absence of any signs of strengthening. Therefore, OPEC+ must accept the current situation.

The level of demand is not enough, and China is notably absent to list the volumes from the producers. Consequently, OPEC+ and other suppliers, particularly the USA, Brazil, and Canada, are actively seeking new outlets. The USA has already initiated exports, spurred on by pressure from the Congress to ramp up crude oil production. The US Congress may probe American oil companies for potential collusion with OPEC+ to inflate prices at the expense of consumers’ pockets. While oil companies rake in substantial profits, OPEC+ is struggling with trying to meet their annual deficits and balancing their incomes with oil prices at the current range of $82-$83 per barrel.

Most of the OPEC+ members are in dire need for the oil price to reach $90 a barrel. Continuing with the current arrangement is the best option, as any instability within OPEC+ would be unwelcome by all members.

By Kamel Al-Harami
Independent Oil Analyst

email: [email protected]

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