OPEC+ is anticipated to extend its current oil production cuts for an extended period as weak global demand limits options for the oil-producing alliance. This development comes ahead of the group’s pivotal meeting scheduled for December, according to a report by Reuters.
The Organisation of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, have faced significant challenges this year in balancing the oil market. Sources and analysts suggest that increasing production would be risky due to tepid demand, while further cuts could spark tensions within the alliance, with some member states seeking to raise output.
Balancing a Delicate Market
OPEC+, which accounts for approximately half of global oil production, has postponed plans to gradually increase output multiple times this year. The alliance has maintained a cautious stance, prioritising market stability amid fluctuating global economic conditions and geopolitical uncertainties.
Weak demand for crude oil, stemming from sluggish economic recovery in key markets and reduced industrial activity, has put downward pressure on oil prices. Under such circumstances, increasing supply risks exacerbating the imbalance, potentially leading to a price slump.
Conversely, further reductions in production could face resistance from member states with ambitions to boost output and capture greater market share. Such dynamics have left OPEC+ with limited room for manoeuvre, particularly as some members navigate domestic fiscal pressures and declining revenues.
Diverging Priorities Among Members
While OPEC+ has largely maintained cohesion in recent years, internal disagreements over production targets have periodically surfaced. Countries reliant on oil revenues to fund national budgets are increasingly eager to pump more oil, particularly as they face growing economic demands. However, others, notably Saudi Arabia and Russia, have advocated for restraint to prevent price volatility and safeguard long-term market stability.
Analysts predict that the upcoming December meeting will test the alliance’s ability to align on a unified strategy. Some expect a continuation of the status quo, with production cuts remaining in place until the global demand outlook improves.
Strategic Implications
The decisions made at the December meeting could have significant implications for global energy markets. Sustained production cuts would likely support oil prices in the short term, providing relief for producer countries. However, such a strategy could also leave OPEC+ vulnerable to losing market share to non-member producers, such as the United States, where output has been rising.
At the same time, prolonged supply restrictions may draw criticism from major oil-importing countries, which have expressed concerns over high energy prices impacting inflation and economic growth.
