Opec+ disorients the market: oil swings and then sinks

The Opec summit used to be a single meeting between ministers, behind closed doors but in person, with clear outcomes. Then the meetings multiplied, often moving to digital platforms. Press conferences have become rare, almost all journalists have been deprived of accreditation and also removed from the mailing list for communiqués, which in turn have multiplied, often becoming ambiguous and incomplete.

On Sunday everything unfolded in an even more complicated and submerged manner than usual. The plenary meetings, which were supposed to take place in person at the Vienna headquarters (involving, as is now customary, first only the Opec countries and then all Opec+ members) were instead held via the Internet.

In addition, there was a third meeting, convened in Riyadh and reserved for a restricted group of eight countries: a sort of Saudi-led elite - which also includes Russia, Iraq, the Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman - that took charge of 'voluntary' production cuts, in addition to those that oblige the entire coalition, and has now decided how to withdraw them.

These cuts - from 2.2 million barrels per day, announced in November 2023 - will continue up to and including September, instead of stopping at the end of June, after which they will be gradually reduced (at a rate of 180,000 bpd), until complete withdrawal by September 2025: a 'bet' that is based on the belief that global demand for crude oil, now rather weak, will recover vigorously, as Opec's engineers persist in predicting (the group sees it growing by 2.2 mbg as early as 2024, double what the IEA expects).

"We are waiting for interest rates to come down, a better trajectory of economic growth, not just a few pockets here and there, and this will probably drive up demand," commented the Saudi minister, Prince Abdulaziz bin Salman , pointing out that the group is always ready if necessary to review any decision. "Some people have very pessimistic views, we don't know how it will turn out, that's why we want to move diligently and cautiously."

On the other hand, other production cuts, totalling 3.66 mbg (of which 2 mbg obliging the entire Opec+ from October 2022 and the rest applied from May 2023 by nine countries), will remain in force for a long time - with expiry pushed back by one year to the end of 2025. The extension was expected by many analysts. No one, however, had foreseen other developments, which came in particular on the front of the revision of production quotas, which form the basis for the cuts.

The Emirates, as mentioned above, got to raise its own by another 300,000 bg (bringing it up to 3.519 mbg in 2025). For everyone else, the review is prolonged and the reordering of quotas - a rather thorny issue, which has already pushed Angola to leave Opec - is postponed until 2026. Also postponed is the recovery of the backlog of cuts imposed on countries that have so far not been very diligent in curbing production: specifically Russia, Kazakhstan and Iraq, which have been asked to present a new plan at the end of the month to bring themselves into line;