The OPEC+ alliance is once again intensifying efforts to ensure member compliance with its agreed oil production cuts, continuing a three-pronged strategy that includes formal and voluntary output reductions.
Two OPEC+ delegates, speaking anonymously due to the sensitivity of ongoing discussions, revealed to CNBC that the coalition is particularly focused on monitoring compliance due to consistent overproduction by members like Iraq and Kazakhstan.
Russia, whose oil is under Western sanctions and often transported through a "shadow fleet," has also exceeded its production quota at times, according to one source. No wonder, due to higher output and moderate demand outlook, there has been pressure on oil prices.
In the past month (as of Sept. 27), WTI crude oil exchange-traded fund United States Oil Fund LP USO has lost 8.5% and Brent crude oil ETF United States Brent Oil Fund LP BNO has shed about 7.7%.
Delay in Easing Voluntary Cuts
Eight OPEC+ members, including Saudi Arabia, were initially set to reintroduce 2.2 million barrels per day (bpd) of voluntary cuts to the market in October. However, this rollback has been delayed until December.
Together with these voluntary cuts, the group is implementing additional production curbs. Under the official policy, OPEC+ is scheduled to produce a combined 39.725 million bpd next year. The same eight members are also voluntarily cutting output by an additional 1.7 million bpd throughout 2025.
Will There Be a Lack of Stability in Oil Prices Ahead?
Oil prices have remained relatively low for most of the year. On Sept. 26, 2024, prices declined sharply following a Financial Times report suggesting that Saudi Arabia might endure lower oil prices and abandon its unofficial $100 per barrel price target to increase production after December.
Carole Nakhle, founder and CEO of Crystol Energy, speculated that the Saudis’ approach might be a warning to non-compliant OPEC+ members. "Saudi Arabia has shouldered most of the burden of the production cuts," Nakhle explained. While higher oil prices are beneficial for the Saudis, Nakhle emphasized that no fixed price target has been set, as quoted on CNBC.
The International Monetary Fund (IMF) estimates that Saudi Arabia needs an oil price of $96.20 per barrel to balance its budget this year. Although Saudi Arabia is under economic pressure, it has not changed its OPEC+ strategy and continues to avoid setting a clear-cut oil price target.
Bottom Line
Although OPEC+'s delay in raising output should boost oil prices in the near term, the medium- and long-term outlook remains bleak due to demand concerns. Any output increase could mar the rising price momentum. However, the initiation of global monetary policy easing and fiscal stimulus in some economies should support oil prices over the medium term.
Oil ETFs in Focus
Invesco DB Oil Fund DBO, ProShares K-1 Free Crude Oil Strategy ETF OILK and United States 12 Month Oil Fund LP USL are some of the oil ETFs that should be closely tracked in the current scenario.
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United States Oil ETF (USO): ETF Research Reports
Invesco DB Oil ETF (DBO): ETF Research Reports
United States Brent Oil ETF (BNO): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
