Oil prices drop following OPEC+ extension of supply cuts

By Duygu Alhan

Oil prices declined on Friday following the decision by the OPEC+ group, which consists of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers, to postpone planned production increases and extend production cuts until the end of 2026, and macroeconomic data released in the US indicated a slowdown in economic growth.

The international oil benchmark of Brent crude fell 0.3% to $71.82 per barrel at 11.05 a.m. local time (0805 GMT), down from the previous session's close of $72.07.

The US benchmark West Texas Intermediate also decreased by 0.3% to $67.98 per barrel, compared to $68.22 at the close of the prior session.

In the 38th OPEC and non-OPEC ministerial meeting, the member countries agreed that the total production of member countries would amount to 39.725 million barrels per day (bpd) in 2025 and 2026. As part of the adjustments, the group confirmed that the 2 million bpd production cut would be extended until December 31, 2026.

Moreover, some countries voluntarily agreed to extend their daily 1.65 million bpd production cut through to December 2026. Saudi Arabia, Russia, Iraq, the United Arab Emirates (UAE), Kuwait, Kazakhstan, Algeria, and Oman voluntarily committed to a 2.2 million bpd production cut, which will remain in place until March 2025.

The OPEC+ group initially decided on a 2 million bpd production cut in October 2022. In April 2023, this was followed by an announcement that several member countries would implement an additional voluntary cut of 1.65 million bpd starting May 2023. During the June 2023 meeting, OPEC+ extended the production cut to 3.65 million bpd through the end of 2024, with an agreement to extend it by another year, until the end of 2025.

Furthermore, in November 2023, Saudi Arabia, Kuwait, the UAE, Oman, Kazakhstan, Iraq, Russia, and Algeria voluntarily agreed to a production cut of 2.2 million bpd for the first quarter of 2024. However, this cut has since been extended multiple times – first through June, then September, and most recently through the end of the year.

The next meeting of the OPEC+ group will take place on May 28, 2025.

Meanwhile, macroeconomic data released in the US, the world’s largest oil consumer, has shown signs of a slowdown in economic growth, further influencing oil prices.

The number of Americans filing first-time unemployment claims increased by 9,000 last week to 224,000, according to Labor Department data released on Thursday. The figure was higher than the market forecast of 215,000 and up from the previous week's revised level of 215,000.

This has heightened concerns over demand, contributing to the downward pressure on oil prices.