OPEC+ sticks to oil production targets for 2023 as Saudi Arabia announces further voluntary cuts

  • The powerful Organization of the Petroleum Exporting Countries (OPEC) met Sunday in Vienna to determine the next production steps, as global oil prices remain under pressure from broader macroeconomic concerns.
  • The discussions reviewed concrete production reductions and changes in baseline levels that determine each participant’s level of output.

Saudi Energy Minister Prince Abdulaziz bin Salman Al Saud arrives at a meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna on June 3, 2023.

Joe Clamart | Afp | Getty Images

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, made no changes on Sunday to oil production cuts planned for this year, with Saudi Arabia, the leader of the alliance, announcing a further voluntary rollback.

OPEC+ also announced in a statement that it will limit combined oil production to 40.463 million barrels per day during the period from January to December 2024.

Previously, the coalition agreed to a decrease of 2 million barrels per day in October. Some OPEC+ members also announced some voluntary cuts of just over 1.6 million barrels per day in April. Russian Deputy Prime Minister Alexander Novak said Sunday that all voluntary cuts, which were initially set to end after 2023, will now be extended until the end of 2024, in comments reported by Reuters.

Saudi Arabia’s energy ministry said Riyadh would implement an additional voluntary cut of 1 million barrels per day for one month from July, which could be extended. This would bring the kingdom’s total voluntary cuts to 1.5 million barrels per day during this period, limiting its production to 9 million barrels.

The move by the 23-nation coalition follows contentious talks that lasted Saturday night, as well as a more than four-hour meeting on Sunday of the coalition’s Joint Ministerial Monitoring Committee, which recommends policy but does not implement it.

At stake for OPEC+ is a battle to reconcile expectations of supply shortages in the second half of the year, current concerns about macroeconomics and inflation, and diplomacy between the groups.

Ahead of the meeting, Saudi Oil Minister Prince Abdulaziz bin Salman in late May warned oil market speculators to “be careful” in a comment widely read as heralding another supply cut.

It remains to be seen whether production cuts in 2024 will provide long-term support for current oil futures prices when markets open on Monday, after months of pressure from global financial turmoil since the start of the year.

Brent crude futures recently settled at $76.13 a barrel on Friday, as several OPEC+ delegates pointed to the deep gap between prices and supply and demand fundamentals.

The producer alliance also agreed to revise baselines – the starting level from which producers cut their production during OPEC+ agreements, usually by a similar percentage – for 2025, after countries’ production capacities were studied by oil analysts IHS, Wood Mackenzie and Rystad Energy.

A higher baseline translates to a higher production ceiling. Crucially, baselines are often reused in new iterations of OPEC+ agreements and their subsequent revision and amendment are often controversial, meaning they can bind producers in the long term.

The United Arab Emirates, a heavyweight in the Organization of the Petroleum Exporting Countries (OPEC), has long been vying for an upward revision of its baseline, taking part of that concession in July 2021.

Meanwhile, other producers in the alliance, such as Angola and Nigeria, have long failed to raise their production to their set OPEC+ quotas amid sabotage, capacity depletion and lack of investment – but potential changes to their baselines to reflect these realities have yet to be formally addressed from Before because about the sensitivity of these discussions, delegates told CNBC.

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