OPEC+ countries have made increased commitments to reduce production

Saudi Arabia managed to persuade other OPEC+ members to voluntarily reduce production in the first quarter of 2024 in addition to their official quotas. As a result, six countries will reduce production by almost 700 thousand barrels per day, and Russia will reduce exports of petroleum products by 200 thousand barrels per day. Under these conditions, Saudi Arabia agreed to extend its voluntary cut of 1 million barrels per day, which was due to expire at the end of the year, for another three months.

A number of OPEC+ countries have agreed to further reduce their production in the first quarter of 2024 to anticipate a possible decline in oil prices due to a seasonal drop in demand. During a meeting on November 30 in Vienna, the leader of the group, Saudi Arabia, negotiated the terms under which it would extend an additional 1 million barrels per day (b/d) production cut that began in July. As a result, Riyadh managed to convince the main OPEC+ participants to share the burden of balancing the market with it.

As a result, Saudi Arabia will maintain a production cut of 1 million b/d in the first quarter, keeping production at 9 million b/d. In exchange, seven countries, including Russia, will voluntarily reduce production by a formal 1.18 million b/d: Iraq by 211 thousand b/d, UAE by 163 thousand b/d, Kuwait by 135 thousand b/d, Algeria by 51 thousand b/d, Oman by 42 thousand b/d and Kazakhstan by 82 thousand b/d.

The overall figure takes into account Russia’s reduction of 500 thousand bpd, but in fact Moscow has pledged to reduce not production, but exports.

Since September, the volume of export cuts has been reduced to 300 thousand b/d; now for the first quarter it will be increased to 500 thousand b/d. Deputy Prime Minister Alexander Novak explained that a reduction in exports by 200 thousand bpd will be achieved through petroleum products. The Russian Federation exports mainly diesel fuel, naphtha and fuel oil by sea.

The government explains that “the reduction will be calculated based on average export levels for May and June 2023.” In May, Russian exports by sea reached the maximum values ​​for the year at 3.9 million b/d, in June – 3.5 million b/d, and due to this high base, Russian oil companies then did not experience problems due to a decrease in supplies abroad .

As for the decline in exports of petroleum products, Kommersant’s interlocutors do not expect that refining volumes will decrease as a result, given the return to full damper payments from October, thanks to which supplies to the domestic market are now premium compared to exports. That is, we will most likely talk about increasing sales in the domestic market.

“Given the nuances of the voluntary agreement between Saudi Arabia and Russia, the production of these two countries is unlikely to decrease compared to September-November indicators, it is no coincidence that the agreements were calculated based on data from May and June,” says Victor Katona from Kpler. “The main result of the OPEC+ deal for the most Russia – redistribution of flows in favor of the domestic market.”

The results of the meeting rather disappointed the market: January Brent futures, which had actively increased in price amid rumors of production cuts, fell sharply following the meeting and by 21:45 was trading at the opening level of $82.9 per barrel.

During the second half of the year, the Russian Federation sought to reduce oil exports, while maintaining its production by loading oil refining. Thus, the Russian authorities sought to reduce the Urals discount to Brent, which reached $40 per barrel at the beginning of the year: in the fall, the discount fell to less than $10. At the beginning of the year, the Russian Federation announced a voluntary reduction in production by 500 thousand b/d from the level of February 2023; it has now been extended for the entire year 2024. Thus, its production should have decreased to about 10 million bpd. Then it was announced that oil supplies would be reduced by 500 thousand bpd starting in August, but the government, when announcing such plans, did not explain at what level this quota was measured. Since September, the volume of export cuts has been reduced to 300 thousand bpd. In October, Deputy Prime Minister Alexander Novak unexpectedly announced that this reduction concerns not only oil, but also oil products. At that time, there were restrictions on the supply of gasoline and diesel fuel by rail, which were introduced to stabilize domestic fuel prices.

Thus, the Russian Federation reduced production less during the year than Saudi Arabia, which voluntarily reduced it by 1.5 million bpd during the year (including an additional unilateral reduction from July by 1 million bpd).

The parties to the deal also set production caps for Nigeria, Angola and Congo at 1.5 million b/d, 1.11 million b/d and 277 thousand b/d. In addition, Brazil should also join the agreement in 2024, which signed a declaration with OPEC+ on November 30. Angola can be considered the most affected party, says Victor Katona, in recent months it has produced little more than the new quota, and subsequently the country will not be able to exceed it. As the analyst notes, the countries of West Africa most actively resisted the pressure of the OPEC old-timers, but in the end Saudi Arabia won a major victory. For Nigeria, the 1.5 million bpd production limit will not be a serious obstacle, since the country has never produced more than 1.35 million bpd of oil during this year.

Dmitry Kozlov