OPEC+ has announced an extension of its significant oil production cuts until 2025, aiming to stabilize the market amidst sluggish demand growth, elevated interest rates, and increasing U.S. oil production. The group will maintain its current reduction of 5.86 million barrels per day (bpd), with specific cuts being extended and gradually phased out.

The decision to prolong these substantial production cuts underscores OPEC+'s commitment to market stabilization. Faced with slow demand growth, high interest rates, and rising U.S. oil production, the group aims to support oil prices by managing supply tightly.

OPEC+ is currently implementing cuts amounting to 5.86 million bpd, which represents approximately 5.7 percent of global demand. This includes mandatory reductions of 3.66 million bpd, originally set to expire at the end of 2024, and voluntary cuts by eight members totaling 2.2 million bpd, initially scheduled to end in June 2024.

The mandatory cuts of 3.66 million bpd will now be extended until the end of 2025. Meanwhile, the voluntary cuts of 2.2 million bpd will be extended by three months, up to the end of September 2024. Following this period, these voluntary reductions will be gradually phased out over the year, from October 2024 to September 2025.

Saudi Energy Minister Prince Abdulaziz bin Salman emphasized that the group's strategy is to wait for more favorable economic conditions before altering their production approach. Specifically, OPEC+ is looking for lower interest rates and more consistent global economic growth to ensure a stable market environment, rather than isolated growth spurts.

OPEC anticipates that demand for OPEC+ crude will average 43.65 million bpd in the latter half of 2024. This scenario suggests a stock drawdown of 2.63 million bpd if the group's output remains at April's rate of 41.02 million bpd. However, this drawdown is expected to decrease as the 2.2 million bpd voluntary cuts start phasing out in October 2024.

In contrast to OPEC's forecasts, the International Energy Agency (IEA) estimates that the demand for OPEC+ oil, combined with stock levels, will average much lower at 41.9 million bpd in 2024. This discrepancy highlights differing perspectives on future market dynamics between oil producers and consumers.

The extension of production cuts by OPEC+ reflects a strategic move to manage supply and support oil prices amid uncertain economic conditions.

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