OPEC+ Extends Deep Oil Output Cuts Through 2025 Amid Market Challenges

OPEC+ has extended its significant oil output cuts into 2025 to stabilize the market in light of lukewarm demand, high interest rates, and increasing U.S. production. Analysts, including those from Goldman Sachs and JPMorgan, offer mixed forecasts, with some expecting bullish demand while others predict downside risks for Brent oil prices.

OPEC+ agreed on Sunday to extend most of its deep oil output cuts well into 2025 as the group seeks to shore up the market amid tepid demand growth, high interest rates and rising rival U.S. production. Here is what market analysts have said about the announcement:

Daan Struyven, head of oil research, at Goldman Sachs: "While OPEC+ extended all three layers of production cuts, we see the meeting as bearish because 8 OPEC+ countries already signaled to gradually phase out the 2.2mb/d of extra voluntary cuts over 2024Q4-2025Q3, despite recent upside surprises to inventories."

"The communication of a gradual unwind reflects a strong desire to bring back production of several members given high spare capacity." "As a result of the bearish meeting, and given recent upside surprises to inventories relative to our expectations, we now see the risks to our $75-90 range for Brent as skewed to the downside."

Amarpreet Singh, energy analyst at Barclays: "The OPEC+ meeting outcome was mildly negative relative to our baseline balances view, as the rollover of additional voluntary adjustments through the end of Q3 24 and a slower than expected phase out of these adjustments was more than offset by the extent of the phase out and the revision in UAE's target for next year."

"The rollover of the additional voluntary cuts for another quarter and associated commentary from key ministers suggests that it would not be surprising to see the group kick the can further down the road if market conditions do not favor a gradual phase out of production cuts starting Q4 24. Kim Fustier, head of European oil and gas research at HSBC:

"This outcome was widely expected by the market." "How OPEC+ unwinds its multiple, complex set of cuts – totalling 5.8mbd in aggregate – remains one of the biggest questions for the oil market. The agreement provides some clarity for the next 19 months but questions remain, including how the 3.66mbd of collective and first-phase voluntary cuts will be unwound beyond end-2025."

Omar Nokta, analyst at Jefferies: "We view this as a modest positive as we had not expected a return of these barrels until later in 2025."

"Earlier this year, when Brent prices reached $90/bbl, there had been a growing expectation that these voluntary cuts would start to unwind at some point in 2024, but softer prices since had negated that view. Thus the gradual unwind in October is a positive surprise. Tankers continue to enjoy strong earnings despite OPEC+ implementing cuts since early 2023. Given further non-OPEC supply is coming in 2025, in line with demand growth expectations, a full unwind of the OPEC+ voluntary cuts may be a ways away." Christyan F Malek, global head of energy strategy and head of EMEA oil & gas equity research at JPMorgan:

"Increased production from 3Q suggests the alliance is comfortable with current inventory levels and should offer the market a clearer line of sight on OPEC's prevailing confidence in supply/demand fundamentals." "Put simply, if these volume adds are adhered to, that should indicate a healthy outlook for nominations and is thus ultimately bullish demand, even though, in the near term we may see some downward pressure on oil prices. Clearly the challenge for the group will be to hold or cut back if demand doesn't prove as robust and we believe their strong cohesion should allow for greater flexibly, if needed."