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OPEC+ Sets Sustainable Oil Production Mechanism Ahead of 2027

OPEC+ Sets Sustainable Oil Production Mechanism Ahead of 2027

The oil cartel led by Saudi Arabia and Russia confirms production cuts and evaluates maximum production capacity.
In a significant move during this week’s ministerial meeting, the Organization of the Petroleum Exporting Countries (OPEC+) announced the establishment of a mechanism aimed at assessing the sustainable maximum production capacity of its members.

This will serve as a reference point for setting the oil production baselines for 2027. The decision comes amidst a commitment to maintain current production cuts, totaling 3.6 million barrels per day (mbd), enforceable until the end of 2026. These cuts do not account for additional voluntary reductions that have been gradually reintroduced to the market since April 2023.

The announcement followed the 39th plenary meeting of OPEC+ ministers, comprising 22 member nations, which was conducted via teleconference.

OPEC+ affirmed the total oil production level established last December, amounting to 39.7 million barrels per day, representing approximately 38% of global production until December 31, 2026.

Notably, this collective production quota excludes the oil output from Venezuela, Iran, and Libya—three OPEC members that are exempt from the agreed limitations due to various involuntary circumstances, including sanctions and conflict, which have hindered their oil industries.

During the meeting, ministers directed two internal committees to closely monitor the market and to convene extraordinary meetings if adjustments in supply levels are deemed necessary.

They also urged full compliance with the national quotas set for each member.

The next ministerial conference of the oil alliance is scheduled for November 30, 2023. OPEC+ did not provide updates regarding the additional voluntary cuts, which total 2.2 million barrels per day, implemented by Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman from 2023 until April 1, 2023, when a gradual reduction of these cuts began.

Unexpectedly, OPEC+ announced an increase of 411,000 barrels per day for May and June, three times the initially projected monthly increase of 137,000 barrels per day.

Speculation surrounds the possibility of another similar increase in July, with a decision anticipated from eight partner nations during an upcoming teleconference.

This accelerated recovery plan in oil production is based on OPEC's assessment of favorable worldwide economic conditions, projecting robust demand, particularly during the summer months in the Northern Hemisphere when transportation fuel consumption typically rises.

However, this optimistic outlook contrasts sharply with a prevailing sentiment among analysts who harbor concerns about numerous uncertainties that could hamper both economic conditions and energy consumption.

These include ongoing trade conflicts, tensions in the Middle East, the Russian invasion of Ukraine, and issues related to Iran's nuclear program.

Additionally, fears of oversupply remain a downward pressure on crude oil prices, although prices did recover in May following a decline of 15% in April.
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