The OPEC+ alliance, made up of members of the producers cartel and allied countries including Russia, extended three different sets of cuts totaling 5.8 million barrels a day
Saudi Arabia and its oil-producing allies have extended output cuts into next year, in a bid to bolster sluggish prices that have failed to rise despite Middle East unrest and the onset of the summer travel season.
The OPEC+ alliance, which includes members of the producers’ cartel and allied nations such as Russia, has prolonged three separate sets of cuts amounting to 5.8 million barrels per day. Brent, the international benchmark, has hovered between $81-$83 per barrel for the past month.
Even the conflict in Gaza and Red Sea shipping attacks by Yemen’s Houthi rebels haven’t driven prices towards the $100 per barrel mark last seen in September 2022. Factors include increased interest rates, worries about demand due to slower-than-expected economic growth in Europe and China, and a surge in non-OPEC supply, including from US shale producers.
However, Saudi Arabia requires higher oil prices to fund Crown Prince Mohammed bin Salman’s ambitious plans to shift the nation’s economy away from fossil fuel exports. Higher oil prices would also aid Russia in maintaining economic growth and stability as it heavily invests in its war against Ukraine.
Analysts predict the cuts could drive oil prices up in the coming months, but much hinges on future oil demand. While the summer typically sees a demand surge during the July-September quarter, uncertainty about demand increases thereafter. US motorists have been enjoying a period of stability in petrol prices, with the average cost per gallon last week being $3.56, just a penny less than the same time last year.
This is a significant drop from the record national average high of $5 per gallon seen in June 2022. However, it’s not the same story across the country, with Western states paying more – in California, the average price per gallon has hit $5.05. The price of petrol in the US is closely tied to crude oil prices, as this makes up half the cost of a gallon of gasoline.
In contrast, European fuel prices see smaller fluctuations due to taxes making up a larger proportion of the overall cost. In terms of production cuts, the OPEC+ members have agreed to extend their current reduction of 2 billion barrels a day through to the end of 2025, according to an OPEC statement.
Additionally, a smaller group of members have voluntarily agreed to reduce their output by 1.65 million barrels a day until the end of 2025, as reported by the official Saudi Press Agency. Finally, another voluntary cut of 2.2 million barrels a day, set to expire at the end of this month, has been extended until September, after which it will be gradually reduced each month until it is completely phased out by September 2025.
