Opec+ meetings spring just enough surprises for the oil markets

Reuters/Amr Alfiky

In the end, there were enough unexpected turns from the weekend’s Opec+ meeting to justify the warnings from some analysts to “watch out for surprises”.

As anticipated, the meetings (plural, notice – more on this later) fulfilled expectations that the main body of cuts in production would be rolled over for at least the rest of 2024.

In fact, around 3.6 million barrels per day (bpd) will be kept off the market until the end of 2025, the bulk of the production cuts that have kept markets tight – and prices relatively high – for the past 18 months.

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But surprise number one came with the news – announced separately from the main Opec release – that eight members of Opec+ (the oil alliance led by Saudi Arabia and Russia) will begin to phase out additional voluntary cuts in the fourth quarter of this year.

If implemented, this change will put 2.2 million bpd back on the market over the 12 months beginning in October, with concerted action by Saudi Arabia, the UAE, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman to bring more oil onto global markets over this period.

The second (milder) surprise was that this grouping gathered in person in Riyadh to co-ordinate their action. But as they have been the Opec+ members mainly responsible for maintaining marginal market balance over the past six months, it is not unreasonable for them to seek a greater degree of co-ordination within the organisation.

In fact, the “Opec+ 8” (as some dubbed them) have left themselves plenty of wriggle room with the addendum that the increases can be “paused or reversed subject to market conditions”.

Bringing the eight more in line with overall Opec+ targets should help to re-balance the cuts burden, and ensure greater cohesion.

Surprise number three was the special treatment handed out to the UAE, which will be allowed to increase its base production by 300,000 bpd by the end of 2025.

By then, the UAE’s “required production level” according to the Opec+ agreement will rise to 3.52 million bpd – a big assist towards its self-declared goal of 5 million bpd capacity next year.

But note too that Saudi Arabia and Russia – by far the biggest producers in the Opec+ group – will also be allowed to increase production significantly.

By the end of 2025, Saudi Arabia will be able to pump nearly 10.5 million bpd – more than Russia at 9.95 million bpd – from a current equal starting point of 8.98 million bpd each. The feeling is that Saudi Arabia has already done more than its fair share for oil market stability. 

Overall, the complex set of statements issued over the weekend are a response to those who have been seeking more long-term guidance from Opec+, and looking for more transparency in their deliberations.

Taken together, they are a “roadmap” to the gradual unwinding of the current cuts, in sometimes painstaking detail.

You have to wish good luck to whichever Opec body will be monitoring Algeria’s snail-paced progress – roughly 4,000 barrels per month – towards its required output level of just over 1 million bpd by the end of 2025.

The markets have been asking for greater detail and certainty, and they’ve got it – at least to the extent that anything with as many moving parts as the global oil business will allow.

The crude price see-sawed as analysts and traders digested the ramifications, down below $80 per barrel for Brent at one stage, then back up to $81.25 as the day wore on.

There are now two major questions on the minds of oil-watchers: what does the Opec+ roadmap tell us about demand? And what will the financial traders (often known as speculators) make of it?

The fairly tentative moves to restore some production could be a sign that Opec+ –  still working on an official estimate of an extra 2.2 million bpd of crude demand this year –  is uncertain about the strength of oil appetite from China.

Some analysts have pointed to a recent official report from Sinopec, the country’s energy giant, that Chinese demand for crude will peak by 2027 – earlier than previous forecasts due to accelerated take-up of EV transportation.

Balancing that, the prospects for increased Indian oil imports – the world’s second biggest – seem enhanced after India's general election and Narendra Modi’s pledge to accelerate economic expansion.

As for the speculators, they seem in for a turbulent few months. Traders report that many financial players have been “aggressively short” of crude in recent months, implying that they expect the price to go down in the short term.

It has not done that so far, and there is nothing in the weekend’s Opec+ pronouncements to suggest a significant drop is on the cards.

If the Opec+ roadmap also means some speculators get their fingers burned, that will go down very well in Vienna and Riyadh.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He acts as a consultant to the Ministry of Energy of Saudi Arabia and is a media adviser to First Abu Dhabi Bank of the UAE