Oil Prices Under Pressure as OPEC+ Extends Production Cuts

Due to ongoing volatility in the international oil market, crude oil prices have been a hot topic of discussion lately. Amid rising demand and limited supply, OPEC+ countries have announced a significant decision to extend their oil supply cuts until the end of 2024.

Let’s explore why OPEC+ took this crucial step and what it means for India.

What’s Happening?

On November 3, 2024, eight member countries of the OPEC+ group announced that they would extend their oil production cuts until the end of December. This decision was made with the aim of boosting oil prices, especially during a period of uncertain demand and increasing supply pressures. In its statement from Vienna, OPEC confirmed that the voluntary production adjustments set in November 2023, amounting to a reduction of 2.2 million barrels per day, would now continue until December 2024.

The primary objective of this move is to maintain price stability and balance the shortfall in the global oil market.

Delay in Increasing Production

The 22-member OPEC+ group, including leading countries like Saudi Arabia and Russia, decided to extend the production cuts. Besides these two, Algeria, Iraq, Kazakhstan, Kuwait, Oman, and the United Arab Emirates (UAE) also supported this decision. These nations are delaying any increase in production due to lower demand, which has exerted downward pressure on oil prices in recent months.

Analysts believe that while this step may help stabilise oil prices, a sustainable rise is only likely if OPEC+ implements additional measures for further production cuts.

Market Sentiment

Despite the decision to extend production cuts, oil prices remained relatively stable on November 12, 2024. The stability is attributed to market participants awaiting OPEC’s monthly report. Recently, oil prices have declined due to China’s lacklustre stimulus package and ongoing concerns about oversupply.

What’s in It for Investors?

Following OPEC+’s decision to delay the production increase by a month, crude oil prices saw a nearly 3% rise on November 4, 2024. Brent futures climbed by $2.13 per barrel, or 2.9%, reaching $75.23 per barrel, while the US West Texas Intermediate (WTI) crude rose by $2.15 per barrel, or 3.1%, to settle at $71.64 per barrel.

As of FY24, India relies on imports for 87.8% of its oil requirements. Therefore, any rise in crude oil prices can increase the costs for Indian oil companies, potentially impacting their profitability.

What’s Next?

The next meeting of OPEC+ ministers is scheduled for early December in Vienna. However, eight member countries have already postponed plans to increase production until early 2025. In the previous meeting, the group had discussed raising production from October, but the decision was left open for review at any time.

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!

This article is for informational purposes only. This is not investment advice. Disclaimer: Teji Mandi Disclaimer