OPEC + to extend oil production cuts until mid-year, Russia plans to increase efforts to cut production.

According to a joint statement issued by member countries such as Saudi Arabia and Russia, OPEC+ will extend its oil supply reduction policy until mid-year to avoid global oil oversupply and continue to support crude benchmark prices through production cuts. It is understood that the nominal total limit of OPEC+ led by Saudi Arabia and Russia is about 2 million barrels per day, which will continue until the end of June. Saudi Arabia will account for half of the promised production cut - Saudi Arabia's voluntary production cut of 1 million barrels per day implemented since July 2023 will be extended until the end of June this year. Russia has committed to strengthen its role as an energy exporter by focusing more on production cuts rather than exports, with the expectation that subsequent production cuts will gradually increase. Energy traders and analysts have been expecting the extension of the OPEC+ production cut agreement, citing the need to counter the seasonal stagnation in global fuel consumption and the increase in production from some of OPEC+'s oil export competitors (especially U.S. shale oil producers). The uncertainties surrounding the economic prospects of major energy-consuming countries have further increased the need for OPEC+ to remain cautious. International benchmark oil prices, specifically Brent crude oil, have not seen a significant increase due to the OPEC+ production cut measures, mainly because the decision to extend the production cut measures to the second quarter may have been widely anticipated by traders. As of the time of writing, Brent crude oil futures prices had only risen by 0.06% to $83.70 per barrel. The uncertainty surrounding ceasefire negotiations between Israel and Hamas in Palestine and the continued attacks by the Houthis on shipping in the Red Sea may be the main stimuli for upward oil price movements in the short term. In 2024, despite geopolitical conflicts in the Middle East affecting global shipping, stable supplies from increased North American oil exports have kept international benchmark oil prices, particularly Brent crude, stable around $80 per barrel. While the fluctuation in the benchmark oil price after years of inflation may be a relief to consumers, many countries in OPEC and its partners (the OPEC+ alliance) may continue to face low oil prices. A report by international ratings agency Fitch Ratings suggests that Saudi Arabia may need international oil prices to be above $90 per barrel as the country invests billions in economic structural transformation, including futuristic cities and hosting international sports events. Another major member of OPEC+, Russia, is also seeking to increase revenue to maintain its comprehensive advantage in the war in Ukraine. Official media from these OPEC+ member countries have stated that these latest production limits will deepen the cuts initiated in the middle of last year, with gradual recovery based on market conditions following the second quarter. The effectiveness of the production cuts is being questioned, as most member countries have not fully implemented their production reduction commitments Russian Deputy Prime Minister Alexander Novak, who oversees energy matters, stated that Russia enjoys unique exemptions in the production and export of crude oil and refined products. Russia will focus more on reducing crude oil production in the next quarter as part of its commitment to the production cut agreement. This commitment may bring some satisfaction to Saudi Arabia. Saudi Energy Minister Prince Abdulaziz bin Salman expressed disappointment last year when Russia did not agree to production cuts. The impact of OPEC+ production cuts on global oil market balance is often more direct than changes in oil exports. For the month of April, Russia expects to cut approximately 350,000 barrels per day of oil production and about 121,000 barrels per day of oil exports. In May, Russia expects further reductions in oil production by 400,000 barrels per day and oil exports by 71,000 barrels per day, with production cuts in June specifically focused on production. However, Russia and most other member countries have yet to fully implement their production or export reduction commitments, leading to doubts about the effectiveness of the production cut agreement, reflected in Brent crude oil prices. OPEC+ has maintained a production cut stance since last year, but oil prices have continued to fluctuate around $80 per barrel. Russia only recently fully implemented the production or export reduction commitments it made nearly a year ago. In January of this year, the country reduced crude oil exports by about 300,000 barrels per day according to the production cut agreement, but its commitments regarding refined product exports were not as transparent. Two other major OPEC+ member countries, Iraq and Kazakhstan, produced tens of thousands of barrels more oil per day in January compared to the agreement quotas of OPEC+, but they have committed to increasing compliance and even compensating for excess production to some extent. Throughout 2024, the OPEC+ production cut policy may need to continue According to most analysts, the decision to extend production cut measures until mid-year has been widely anticipated, but OPEC+ may face more difficult choices at the next member country production meeting on June 1, when energy ministers will devise oil production policies for the second half of the year. Forecasts from the International Energy Agency (IEA) based in Paris indicate that OPEC+ will need to stick to production cut policies throughout the year as global oil demand growth slows significantly and new supply from the Americas rises. Saad Rahim, Chief Economist at commodities trading giant Trafigura Group, stated in an interview that the major OPEC+ member countries definitely do not want to resume production processes too early. It remains unclear whether all OPEC+ member countries are willing to accept the policy expectation of year-long production cuts. While Saudi Arabia often urges caution, its neighbor the United Arab Emirates has been keen to take advantage of recent investments in new oil production capacity. Some forecasters believe this will not be an issue affecting OPEC+ consensus, as strengthening demand will enable OPEC to gradually increase production.Reduce production restrictively, and increase production scale later this year.Paul Horsnell, Head of Commodity Research at Standard Chartered Bank, recently stated: "The fundamentals of the overall market have improved significantly." "OPEC will soon be able to increase production without flooding global oil inventories."