On June 4, OPEC+ reached an uneasy compromise in Vienna after seven hours of tough negotiations. As crude oil prices fell due to macroeconomic issues, supply instability, and demand uncertainty, this was the first in-person production policy conference in almost three years.
The 23-member oil producer alliance, which includes Russia and Saudi Arabia, decided to maintain its output target for this year. However, Saudi Arabia agreed to a voluntary one-month output decrease of 1 million barrels per day (mbpd) starting July. Importantly, it didn’t say when.
“Adjust the level of crude oil production to 40.46 mbpd starting January 1 2024 until December 31 2024,” the cartel said. To maintain demand, it cut oil output by 2 mbpd. In April, seven member nations, lead by Saudi Arabia, offered 1.15 mbpd of voluntary cutbacks, while Russia pledged 500,000 bpd in March.
After a March 2020 dispute ended their oil relationship and sparked a price war, Moscow and Riyadh have resumed cooperation under a new OPEC+ accord. Since, they’ve united.
Explain market price declines.
Conflicting remarks from member countries swayed market sentiment before the June 4 summit. “I keep advising [oil market speculators] that they will be ouching. April hurt. On May 23, Saudi energy minister Prince Abdulaziz bin Salman cautioned the market, “I’m not a poker player, but I would just tell them, watch out.”
Calling the bluff followed. Was it a bluff, rethink, or pact? Intriguingly, oil prices have not increased despite market tightening. Why?
Rystad Energy, an independent energy research and business intelligence organization in Oslo, predicts a 2.4 mbpd oil market shortfall through December. Jorge Leon, its senior vice president, says stronger-than-expected supply, trailing demand, and non-fundamental reasons are keeping oil prices low despite the market shortage.
OPEC+ members strayed from April production curbs in May, according to oil production statistics. Instead of the planned 1.15 mbpd decline, the group of seven nations produced 900,000 bpd. Russia dropped production by 400,000 bpd, less than its target of 500,000.