In a pivotal move, OPEC+ members, responsible for over 40% of global oil supply, have agreed to substantial voluntary production cuts for early next year. The decision, led by Saudi Arabia’s commitment to maintain its 1 million barrels per day (bpd) reduction, was reached during a virtual meeting on Thursday focused on 2024 oil output. This new agreement, as per OPEC+ sources, will see overall cuts approaching 2 million bpd. These reductions include Saudi Arabia’s ongoing voluntary decrease, alongside Russia’s newly announced 500,000 bpd cut. Other member states are also set to contribute, with Algeria confirming a 50,000 bpd reduction.
This consensus follows previous measures where OPEC+ had already implemented cuts of around 5 million bpd, a strategy aimed at stabilizing the market and supporting oil prices. However, the current global economic outlook and the potential for a surplus in 2024 have prompted this latest round of cuts. Despite these efforts, oil prices experienced a downturn after an initial surge of over 1% earlier in the session. February futures for Benchmark Brent crude dropped by 3%, falling below $81 a barrel. This decline occurred even as the front-month January contract is set to expire.
The backdrop to these discussions includes a forecast by the International Energy Agency (IEA) predicting a slowdown in demand growth for 2024. This is attributed to the waning impact of the pandemic economic recovery, coupled with advancements in energy efficiency, the growth of electric vehicle fleets, and other structural factors. Nevertheless, reaching this agreement was not without challenges. The meeting, initially scheduled for November 26th, was postponed due to disagreements, particularly over output quotas for African producers. The finalization of these cuts coincides with the opening of the United Nations’ COP28 climate summit in the United Arab Emirates, highlighting the complex interplay between energy policy and global climate commitments.