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

  • The influential Organization of the Petroleum Exporting Countries met in Vienna on Sunday to iron out the next production steps, as global oil prices remain under pressure from broader macroeconomic concerns.
  • Discussions covered both concrete production cuts and changes in the base levels that determine each participant’s production level.

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

Joe Klamar | Afp | Getty Images

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

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

Previously, the alliance agreed to a reduction 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 on Sunday that all voluntary cuts, originally set to expire after 2023, would now be extended to the end of 2024, in comments reported by Reuters.

Saudi Arabia’s Energy Ministry said Riyadh will implement an additional one-month voluntary cut of 1 million barrels per day starting in July, which could be extended. This will bring the Kingdom’s total voluntary reduction to 1.5 million barrels per day over the period, limiting production to 9 million barrels.

The move to the 23-nation alliance follows contentious talks that stretched well into the night on Saturday, as well as a more than four-hour Sunday meeting of the alliance’s joint ministerial monitoring committee, which recommends, but does not implement, policy.

At stake for OPEC+ is a struggle to reconcile the prospect of tighter supply in the second half of the year, current macroeconomic and inflationary concerns, and intergroup diplomacy.

Ahead of the meeting, the Saudi oil minister, Prince Abdulaziz bin Salman, warned oil market speculators in late May to “beware”, in comments that were read as foreshadowing another supply cut.

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

Brent futures last settled at $76.13 a barrel on Friday, with several OPEC+ delegates noting the deepening gap between prices and fundamentals of supply and demand.

The producers’ alliance also agreed to review the baselines – the starting level from which producers cut production under OPEC+ deals, usually by a similar percentage – for 2025, following a study of countries’ production capacity by oil analysts IHS, Wood Mackenzie and Rystad Energy.

A higher baseline means a higher output ceiling. Critically, baselines are often reused in new iterations of OPEC+ deals, and their review and subsequent adjustment are often contentious, meaning they can bind producers over the longer term.

OPEC heavyweight UAE has long campaigned for an upward revision to its baseline, and received part of such a concession in July 2021.

Other alliance producers, such as Angola and Nigeria, have meanwhile failed to lift output to their allocated OPEC+ quotas amid sabotage, capacity depletion and underinvestment – ​​but potential changes to their baselines to reflect these realities were not formally addressed before because of the sensitivity of those discussions, the delegates told CNBC.

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