(Bloomberg) -- OPEC+ is accepting that its mission to defend oil prices will drag on much longer than expected.
At an online gathering on Thursday, the group led by Saudi Arabia and Russia agreed for a third time to delay the revival of halted production, and slow it down. The group will unwind its current production cuts gradually from April 2025 until September 2026 — a full year later than originally envisioned.
The protracted process reflects the bind the Organization of Petroleum Exporting Countries finds itself in: with oil demand faltering in China and supplies booming across the Americas, there’s little scope for the cartel to restore the supplies it has kept off the market since 2022.
“OPEC+ has recognized there is no room to bring back barrels next year,” said Jorge Leon, an analyst at Rystad Energy A/S, who previously worked at the OPEC secretariat. “The group is buying time.”
This is a stark reversal from the last OPEC+ meeting in June, when the alliance had been confident it could start to restore a significant chunk of the output it had previously idled in a bid to shore up prices. The producers outlined a road map for reviving 2.2 million barrels a day in monthly tranches starting in October.
But conditions in the oil market soon shifted. Demand contracted for six straight months in top consumer China, while US production hit new highs and a wave of fresh supply came from Brazil, Canada and Guyana.
Oil prices — the economic lifeblood of OPEC+ members — have plunged 18% since early July to trade near $72 a barrel in London. Citigroup Inc. and JPMorgan Chase & Co. have predicted that crude will keep sliding into the $60s next year.
That poses a financial threat members like the Saudis, who have already been forced to cut spending on lavish economic transformation plans. Their oil-market ally, Russian President Vladimir Putin, seeks revenue to continue waging war on Ukraine.
Multiple Delays
OPEC+ pushed back the first in its series of monthly hikes to December, then January, and now to April. On top of that, the 2.2 million-barrel program will be spread out over 18 months instead of 12, slowing the pace to about 120,000 barrels a day each month, from 180,000 barrels under the previous plan.
In a further show of resolve, the alliance said that another set of quotas limiting production across the wider group will be extended by one year to the end of 2026.
Even the United Arab Emirates, which had lobbied hard to phase in an extra 300,000 barrels a day of newly installed production capacity, agreed to delay and slow down those increases.
Yet all of these concessions may still fail to shore up crude prices, which showed little reaction to the decision on Thursday.
Global markets face a surplus of 1 million barrels a day in 2025 even if OPEC+ doesn’t add a single barrel, according to the International Energy Agency. Conditions further out in time don’t look any more promising, as the shift from fossil fuels to electric vehicles and renewable energy gathers pace.
The delay “will only moderately dampen the protracted surpluses in 2026 and 2027,” said Bob McNally, founder of consultant Rapidan Energy Group and a former White House official.
Trump Card
Still, this outlook could be upended by the return of President-Elect Donald Trump, who has threatened both to impose sanctions on Iran, one of the biggest members of OPEC+, and punitive tariffs on China, one of its biggest customers.
If Trump renews the campaign of “maximum pressure” that squeezed crude exports from Iran, deployed during his first term to curtail Tehran’s nuclear program, that could create the space for its Middle East adversaries to raise production. If his administration focuses instead on a trade war with China, that could reduce the demand for OPEC+ crude even further.
“In a challenging market, there’s a compelling case for OPEC+ to wait and watch,” said Helima Croft, head of global commodity strategy at RBC Capital Markets LLC.
If OPEC+ nations do need to persevere with their cuts well into 2026, that’s a big challenge for members such as Iraq and Kazakhstan, which have largely failed to implement their pledged supply curbs.
Some market-watchers also estimate that the UAE, eager to monetize investments in new capacity, is pumping far in excess of its OPEC+ quota. Abu Dhabi’s exports surged to a seven-year high last month, tanker tracking by Bloomberg News shows.
Analysts at JPMorgan Chase & Co. and Macquarie Bank Ltd. have questioned whether OPEC+ members could eventually cast off any limits on their production after so many years of restraint — something that would have seismic repercussions for the wider oil industry.
If OPEC+ were to abandon its cuts, the market could tip into a structurally bearish phase defined by years of low prices. That’s what happened in the late 1980s, and again after the US shale oil revolution of the mid-2010s.
“It all hinges on OPEC production policy,” said Gregory Brew, geopolitical analyst at the Eurasia Group.
--With assistance from Julian Lee, Ben Bartenstein and Nayla Razzouk.
