OPEC+ Will Not Reduce Production Cuts Until Next Year

Decision by the End of This Month... Daily Production Cut of 7.7 Million Barrels Likely to Be Maintained for Up to 6 More Months
Next Year's Oil Demand Expected to Increase by 6.2 Million Barrels per Day Compared to This Year... Price Rise Possible

[Asia Economy Reporter Naju-seok] OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies) is considering maintaining the current level of production cuts next year. Under the judgment that crude oil demand is not recovering, they plan to produce 2 million barrels less per day than originally agreed at the beginning of next year.

[Image source=Yonhap News]

On the 17th (local time), major foreign media reported that OPEC+ is reviewing the extension of the agreement to cut daily crude oil production by 7.7 million barrels into early next year. The plan under discussion is to postpone the originally scheduled reduction in production cuts early next year and maintain the current level of crude oil production for 3 or 6 months. This measure is due to the slow recovery of global crude oil demand caused by the impact of COVID-19. Initially, OPEC+ had agreed to reduce the production cut scale to 5.5 million barrels per day starting January next year.

OPEC+'s technical committee expects the recovery of crude oil demand next year to be slower than initially anticipated. They see significant damage caused by the spread of COVID-19 worldwide this fall. OPEC+ forecasts that crude oil demand next year will increase by 6.2 million barrels per day compared to this year, which is lower than the previous estimate of 6.5 million barrels.

Based on this, OPEC+ expects that if the production cut scale is reduced early next year, global crude oil inventories will increase significantly. If the current level of production cuts is extended for 3 more months, crude oil inventories are predicted to increase by 73 million barrels compared to the 5-year average, and if extended for 6 more months, inventories are expected to rise by 21 million barrels above the 5-year average.

Due to the sharp decline in crude oil demand, oil-producing countries have been troubled by oversupply issues. Although inventories have decreased, crude oil stocks in September this year still exceed the 5-year average by 212 million barrels.

Whether the current production cut scale will be extended is expected to be decided at the OPEC+ meeting scheduled for two days starting on the 30th.