NEW DELHI: Crude oil prices fell sharply by 541 points to 6149 on Tuesday, down from 6690 the previous day, even as OPEC+ announced a major extension of its oil production cuts aimed at stabilizing the market.
The decision, which extends the cut of 1.65 million barrels per day (bpd) announced in April 2023, will now remain in effect until the end of 2025.
The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, revealed that they would continue to enforce substantial oil production cuts totalling 5.86 million bpd.
The move is designed to address the challenges posed by sluggish demand growth, elevated interest rates, and the increasing production of oil by the United States.
OPEC+ had initially planned for the mandatory cuts of 3.66 million bpd to expire at the end of 2024. However, under the new agreement, these cuts will be extended through to the end of 2025.
Additionally, the voluntary reductions by eight member countries, amounting to 2.2 million bpd, were originally set to end in June 2024 but will now extend until September 2024. Following this extension, the voluntary cuts will be gradually phased out from October 2024 to September 2025.
Despite these measures, which aim to tighten supply and bolster oil prices, the market reaction was unexpectedly negative.
Analysts suggest that the drop in crude prices could be attributed to several factors.
Among them are ongoing concerns over the global economic outlook, high interest rates, and the robust increase in U.S. oil production, which may be offsetting the impact of OPEC+’s supply management efforts.
OPEC+ is hoping for a more stable economic environment, with lower interest rates and consistent global growth, to ensure the efficacy of their strategy. The group’s projections indicate that the demand for OPEC+ crude will average 43.65 million bpd in the latter half of 2024.
This scenario anticipates a stock drawdown of 2.63 million bpd if production remains at April’s rate of 41.02 million bpd. However, this drawdown is expected to decrease as the voluntary cuts begin to phase out in late 2024.
In contrast, the International Energy Agency (IEA) forecasts a lower demand for OPEC+ oil, combined with stock levels, averaging 41.9 million bpd in 2024. (ANI)
Also Read: OPEC Plus announces oil output cuts of around 1.16 mbpd
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