OPEC+ countries, spearheaded by Saudi Arabia and Russia, have decided to prolong the recent voluntary oil production reductions for an additional three months in an effort to push up prices, which have continued to be low amidst persistent geopolitical conflicts across Europe and the Middle East.
Saudi Arabia state news agency reports that the Kingdom will extend its voluntary cuts of 1million barrels daily for the next three months which has been implemented since July 2023.
This is in addition to the 500-thousand-barrel daily production cuts earlier agreed in April 2023.
Voluntary cuts from OPEC+ members
Each OPEC+ member country has made its reduction announcements independently. Russian Deputy Prime Minister Alexander Novak revealed that, in alignment with certain OPEC+ nations, Russia plans to reduce its oil production and exports by an additional 471,000 barrels per day (bpd) for the second quarter of 2024.
Kuwait announced a reduction in its oil production by 135,000 bpd until June. Similarly, Algeria will lower its production by 51,000 bpd, and Oman will cut its output by 42,000 bpd.
The move by OPEC+ to allow members voluntarily decide production cuts stems from the effects of similar efforts in December where OPEC reduced production quota for its African members leading to Angola’s exit from the oil cartel. Nigeria saw its production quota reduced from 1.78 million barrels to 1.5 million barrels daily– far below its 2024 budget production benchmark.
Reason for production cuts
Recent production cuts are part of a sequence of production reductions by OPEC+ members initiated in 2022, aimed at bolstering prices in the face of increasing production in the US and lukewarm global demand.
Since the initiation of the latest voluntary reductions in January, they have decreased the collective production goals of the members by approximately 2.2 million barrels per day.
Since the announcement of the recent cuts at the end of November, Brent crude oil prices have increased by 6%, and West Texas Intermediate (WTI) by nearly 8%.
However, even with the ongoing tensions in the Middle East, including the conflict between Israel and Hamas and assaults on commercial vessels by the Houthis, oil prices have not returned to the $100 per barrel mark, last observed in the summer of 2022.