OPEC+ Prepares for Three-Month Extension of Cuts
OPEC+ is discussing an extension of its production cuts until the end of the first quarter of 2025, Reuters has reported, citing unnamed sources from the group.
OPEC+ is meeting on Thursday to co-ordinate production policy and extending the cuts is the most logical course of action in light of recent price trends, which have seen the benchmarks stuck below the level that most large OPEC+ producers need to be make their budgetary ends meet.
OPEC+ agreed the cuts last year in response to the slide in prices following their strong rally in 2022. The cuts worked to stabilize prices but the slide soon resumed, driven by weakening Chinese demand growth after the post-lockdown boom and predictions that peak oil demand is not far on the horizon.
That, and the perception of ample supply despite the cuts has served to keep oil prices in a rather limited range, prompting OPEC+ in turn to keep extending its cuts despite plans to gradually begin returning supply to market this year and restore the full volume of the cuts by the end of 2025.
The total amount in daily supply withheld by the cartel stands at some 5.86 million barrels daily. Despite the quite significant size of the cuts, traders have shrugged them off, looking at China where demand growth has weakened this year, after soaring two years ago following the end of the pandemic lockdowns.
Most analysts appear to agree with that perception of weak demand and ample supply. Some, however, are warning that the supply and demand situation of crude oil may be rather different than that perception.
“We think that oil prices are about $5 per barrel undervalued relative to the fair value based on the level of inventories,” Goldman Sachs analysts said recently, implying a market correction may be on the horizon.