TASS-FACTBOX. On December 5, 2024, the 57th meeting of the OPEC+ Joint Ministerial Monitoring Committee (JMMC) in a videoconference format is planned. TASS has prepared a report about the role of OPEC+ agreements in stabilization of the oil market.
Formation of alliance, first agreement
An almost ten-year period of high oil prices ended in late 2014, which caused the necessity to develop coordinated actions by Russia (in 2015, Russia’s daily oil output amounted to 10.7 mln barrels per day (mbd), 11% of global production) and members of the Organization of the Petroleum Exporting Countries (OPEC; 32.5 mbd in 2015, 33.8%). The situation deteriorated the most at the beginning of 2016 when oil prices fell below $30 per barrel for the first time since 2002 due to the removal of sanctions against Iran and the lifting of the targeted output level by OPEC states.
On February 16, 2016, Russia and three OPEC countries, Saudi Arabia, Qatar and Venezuela, started a discussion on possible freezing of the production level by ministries. However, the first formal talks held in April of the same year in Qatar’s Doha were not fruitful.
On November 30, 2016, 13 OPEC member states agreed in Vienna on reduction of oil output. On December 10, another 11 non-OPEC countries, including Russia, Azerbaijan, Bahrein, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Sudan, Equatorial Guinea (it joined OPEC later, in 2017) and South Sudan, joined the agreement. All members of the deal, which was dubbed OPEC+ by the media, agreed on reducing the joint production by 1,758,000 barrels per day compared with the level in October 2016. Russia cut production by 300,000 barrels per day.
In 2017-2019, the Vienna agreement was extended several times with minor adjustments. Overall it facilitated growth of oil prices and stabilized the market. Before production started to be reduced, on December 1, 2016, the cost of 1 barrel of Brent crude oil surpassed $50 for the first time since June 2016. The average price of Brent oil amounted to $54.1 in 2017, $71.3 in 2018, and $64.5 in 2019. The results attained prompted OPEC+ countries to sign a long-term cooperation charter in July 2019.
COVID-19, new agreement
In January 2020, prices of futures contracts started falling as the market responded to the news on a new coronavirus infection coming from China. On March 6, Saudi Arabia failed to reach an agreement with Russia during a ministerial meeting on March 6 on extension of previous agreements (the deal expired on April 1) or output reduction. After that Saudi Arabia announced that it would boost production to the maximum level of 12 mbd day instead of 9.8 mbd stipulated by the agreement.
At the end of March, as governments of almost all countries of the world started imposing strict curbs and reducing economic activity due to a sharp rise in the number of COVID-19 cases, global oil supply exceeded demand by 20 mbd forcing a return to talks on stabilization of fuel prices.
On April 2, 2020, Saudi Arabia initiated an urgent OPEC+ meeting in a videoconference format. On April 3, Russian Energy Minister Alexander Novak said at a meeting with President Vladimir Putin that it was necessary to slash production "to around 10 mln barrels per day" to stabilize the situation. The minister also noted that joint efforts by all major producers, including Russia, Saudi Arabia, the US and other non-OPEC countries, were required for stabilizing the sector.
Following the talks at the level of OPEC+ and G20 taking place on April 9-12, an agreement was concluded to reduce oil production. OPEC+ nations approved at an urgent meeting a reduction of output by all 23 member-states by 9.7 mbd in May-June, by 7.7 mbd in July-December, and by 5.8 mbd by April 2021. Meanwhile other oil-producing countries, including the US, Norway, Argentina and Canada, also took place in the transaction. The overall output reduction was estimated at 15-20 mbd. Russia and Saudi Arabia agreed on cutting output by 2.53 mbd - from 11 mln to 8.47 mbd each. The US announced a production cut by 2-3 mbd (from 13 mbd).
The signing of the deal was not followed by an immediate rise in prices. Moreover, due to a surplus of crude oil stocks in the US, prices of May futures contracts of the American WTI crude oil grade was negative on April 20 for the first time ever. By the end of the month June futures contracts remained above $20 per barrel. The deal came into force on May 1, 2020. Soon after that the situation on the oil markets started stabilizing, with futures contracts of Brent crude oil having reached $39 per barrels by the beginning of June.
Price stabilization in 2020-2022, another reduction
On December 3, 2020 due to recovery of economic activity OPEC+ ministers greenlighted a decision to increase oil production by 500,000 barrels per day. Later the alliance eased output curbs until August 2022. By that time the total level of oil production by members of the alliance had been set at 43.955 mbd, which was almost 2 mbd lower than in 2019.
On September 5, 2022 OPEC countries decided to slash production by 100,000 barrels per day in October. Commenting on the decision, Russian Deputy Prime Minister Alexander Novak said that it was taken due to global economic slowdown.
On October 5, ministers of OPEC+ member states agreed on the largest oil production cut in two years by 2 mbd and extended the agreement until the end of 2023 at the first face-to-face meeting since 2020 in Vienna. After that in October 2022 OPEC+ countries decided to give up the practice of monthly revision of the oil output level and scheduled the next meeting for June 4, 2023. However, in April 2023, following the meeting of the OPEC+ monitoring committee due to the oil surplus some members of the alliance announced that starting May they would voluntarily slash production by additional 1.66 mbd. In particular, Russia and Saudi Arabia decided to voluntarily cut output by 500,000 barrels per day each.
In 2023, the production parameters were considered twice: on June 4 and November 30. Following the June meeting quotas by the end of 2024 were lowered by 422,000 barrels per day for OPEC countries and by 971,000 barrels per day for non-OPEC states. At an online meeting at the end of November it was decided not to change the main parameters of the transaction; instead a number of countries announced a voluntary reduction of output in Q1 by a total of 2.2 mbd. In particular, Russia added 200,000 barrels per day to reduced volumes. Meanwhile among OPEC countries Iran, Libya and Venezuela were freed from cuts.
Brazil joined OPEC+ cooperation on January 1, 2024, though the country does not plan to participate in output reduction so far. That said, Angola has left the OPEC alliance.
On March 3, 2024 all OPEC+ countries adhering to voluntary output reduction in Q1, including Russia and Saudi Arabia, extended voluntary oil production cuts to Q2 2024.
On June 2, 2024, at a meeting in Riyadh a number of OPEC+ countries, including Russia and Saudi Arabia, extended voluntary oil output cuts in the amount of 2.2 mbd by the end of September 2024. Moreover, voluntary output cuts were extended until the end of 2025 by 1.66 mbd. Meanwhile it was decided at the talks in September to postpone restoration of production at least by the end of 2024.
Results of transaction in 2020-2024
The price of Brent crude oil exceeded $80 per barrel in October 2021 and $90 per barrel at the end of January 2022 (first since October 2014) thanks to the market environment. On February 24, 2022, after the beginning of Russia’s special military operation in Ukraine, oil prices surpassed the $100 per barrel mark for the first time since September 2014, reaching $110-120 per barrel in March. However, from December 2022 to the end of 2023 they stabilized at the level of $70-80. In the first half of this year prices hovered in the range of $77-90 per barrel. Since the end of July, they have been at $70-80 per barrel, whereas in early September they even plunged briefly below $70 per barrel.