OPEC⁺'s decision to extend voluntary output cuts of 2.2 million barrels per day until the end of September 2024, followed by a gradual phasing out over the subsequent three quarters, represents a strategic pivot. This change aims to stabilize and potentially regain market share lost to non-OPEC⁺ producers, including those in the United States, Canada, Brazil, and Guyana. The scheduled production increases are substantial, equating to approximately 18 months of normal global oil consumption growth.
OPEC⁺ announced voluntary output cuts of 2.2 million b/d will be expanded until October 2024.
OPEC⁺'s aim is to slow down drilling activities among higher-cost producers, particularly in the U.S. shale sector.
The six-month Brent spread fell to $1.50 per barrel from an average of $2.85 in May and $4.86 in April, indicating market adjustment.
Oil futures prices have reached a four-month low as OPEC⁺ ministers announced plans to increase production starting in the fourth quarter of 2024. On June 3, front-month Brent futures closed at $78 per barrel, a modest rise of $2 per barrel compared to the same time last year. The six-month Brent spread has decreased significantly, indicating a market adjustment to the anticipated rise in oil supply.
The rationale behind this strategy is to create a more competitive market environment where lower prices may slow down drilling activities among higher-cost producers, particularly in the U.S. shale sector. OPEC⁺'s planned increases are designed to pre-emptively curb additional output from these rival producers by signaling future market conditions that favor lower prices and higher inventories. This shift marks a departure from previous tactics focused on depleting excess inventories to drive prices higher.
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