The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, announced on Thursday that they will extend their current oil production cuts of 2.2 million barrels per day through November 2024. This decision comes as the coalition of the world's top oil producers grapples with declining crude and fuel prices, despite ongoing efforts to support the market through supply restrictions.
The extension marks yet another attempt by OPEC+ to stabilize oil prices, which have been on a downward trajectory for much of the year. The group has been implementing production cuts for nearly two years to prevent an oversupply that could further depress prices and strain the oil-dependent economies of its member states. However, these measures have struggled to counterbalance weakening demand, particularly from China, the world's largest oil importer, and record-high production levels from the United States.
In its latest move, OPEC+ indicated plans to phase out these voluntary cuts starting in December, with a complete unwind by November 2025. The decision to delay a production increase initially scheduled for October by two months was seen as a strategic effort to curb the recent sell-off in oil futures, which saw U.S. crude prices dip below $70 per barrel for the first time since December 2023.
The immediate reaction to OPEC+'s announcement was a modest uptick in oil prices. West Texas Intermediate (WTI) crude futures, the U.S. benchmark, rose by 0.1% to $69.27 per barrel, while Brent crude, the international benchmark, edged up 0.2% to $72.82 per barrel. Despite these gains, both benchmarks have seen significant declines this year, with WTI down approximately 3.5% year-to-date and Brent down 5.7%.
Analysts suggest that the recent extension of production cuts reflects OPEC+'s ongoing struggle to maintain price stability in a market beset by multiple challenges. "There's a number of factors that are really working against OPEC over the next few months," said Andy Lipow, president of Lipow Oil Associates, in an interview with CNBC. "They want to see Brent crude oil prices at $85 to $90 per barrel to balance their budgets."
The extension of production cuts comes at a time when the global oil market is facing significant headwinds. One of the most pressing concerns is the faltering demand from China, where economic growth has slowed, reducing the country's need for crude imports. In addition, the end of the U.S. gasoline driving season has further dampened demand, coinciding with the start of seasonal refinery maintenance in the U.S. and Europe, which typically leads to a decrease in crude oil consumption.
These factors have compounded the difficulties faced by OPEC+ in their efforts to prop up prices. Despite the cuts, global oil supply continues to outstrip demand, leading to concerns that the market could experience a significant surplus. In June, the International Energy Agency (IEA) warned that a supply glut could erode OPEC+'s influence over oil prices, projecting that global supply could exceed demand by as much as 8 million barrels per day by 2023.
In the U.S., crude oil inventories have also influenced market dynamics. The Energy Information Administration (EIA) reported a substantial drawdown in U.S. crude oil inventories by nearly 7 million barrels for the week ending August 30, a figure that exceeded market expectations. However, gasoline stocks rose by 800,000 barrels during the same period, reflecting a complex supply-demand picture that continues to challenge the market.
The U.S. crude benchmark has shed around 6% of its value this week alone, while Brent has seen an even steeper decline of 7.8%. These losses have effectively erased all gains for the year, with market sentiment heavily influenced by the anticipation of increased supply at a time when demand is expected to weaken further.
