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Robert Rapier

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U.S. Crude Production Growth Challenges OPEC+ Control Over Prices

  • OPEC+ agrees to extend voluntary production cuts of 2.2 million BPD until the end of 2025, with gradual easing starting in October 2024.
  • The decision aims to stabilize crude prices and balance market demands, reflecting Saudi Arabia's efforts to reconcile diverse member interests.
  • Weak demand concerns in China and other major economies, coupled with record U.S. oil output, have contributed to falling oil prices despite OPEC+ cuts and Middle Eastern tensions.
Oil Production

The OPEC+ alliance, which includes Saudi Arabia and Russia, two of the world’s Top 3 oil producing countries, met in Riyadh, Saudi Arabia at the 37th OPEC and non-OPEC Ministerial Meeting. The group reaffirmed their commitment to the Declaration of Cooperation (DoC) and extended oil production levels until the end of 2025. They will continue using independent sources to guide 2026 production levels.

Although the decision extends voluntary production cuts of 2.2 million BPD announced last November into the next year, it gradually eases some reductions starting in October 2024.

This decision, aimed at stabilizing crude prices and balancing market demands, reflects Saudi Arabia’s efforts to reconcile diverse member interests. The alliance will continue to monitor market conditions and adjust strategies accordingly. Notably, the UAE will see a ~10% boost in its production target next year, following intense negotiations.

The Joint Ministerial Monitoring Committee (JMMC) will meet bi-monthly to monitor market conditions and compliance, with the authority to call additional meetings if necessary. The importance of full conformity to production agreements was emphasized, and the next OPEC and non-OPEC Ministerial Meeting is scheduled for December 1, 2024.

Although OPEC+ cuts and Middle Eastern tensions reduced global crude supply by nearly 6%, oil prices have dropped roughly 10% since peaking in early April. Brent crude, the global benchmark, has fallen from $91 in April to $82 per barrel, while West Texas Intermediate (WTI) dropped from nearly $87 to $78.

According to the International Monetary Fund, Saudi Arabia needs Brent crude at around $81 per barrel to balance its budget. But OPEC has had an increasingly difficult time controlling prices due to the ongoing expansion of U.S. crude production.

In a press release from S&P Global Commodity Insights, Bhushan Bahree, Executive Director, S&P Global Commodity Insights said, “Two years ago, at this time OPEC+ output was 2.2 million b/d higher than it is now. Total non-OPEC+ crude oil output is 3.1 million higher now, with more than half that growth coming from the United States alone. Put another way, OPEC+ has had to make room for the rising output of others or face downward pressure on prices.”

In addition to record U.S. oil output increasing supply, weak demand concerns in China and other major economies have also contributed to falling oil prices.

By Robert Rapier

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Leave a comment
  • Mamdouh Salameh on June 12 2024 said:
    It is all bravado and more bravado. Despite all the United States' opposition to OPEC since its founding 64 years ago in Baghdad and all the hurdles it has been putting in its way, OPEC+ is now the undisputed leader in the global oil market and the one to whom the market listens attentively.

    It leaves it to the US to hype about its oil production and its influence in the market.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert
  • Carlos Blanco on June 13 2024 said:
    The 'expert' on the internet will keep denying the impact of US oil production by saying it's false information. It will not deny the fact that OPEC is losing the power to manipulate the price.

    Remember when these 'experts' predict the $200 per barrel price a while ago?

Leave a comment

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