OIES Podcast – Unpacking OPEC+ Multilayer Decision

In this latest podcast, David Ledesma unpacks the latest OPEC+ decision with Bassam Fattouh. The latest OPEC+ decision is quite unique because of its multiple layers. To start with, OPEC+ countries agreed a new deal that starts in January 2024 till the end of December 2024. Also, earlier this year in April, several OPEC+ countries announced voluntary cuts until the end of 2023. During the last meeting, these countries decided to extend these voluntary cuts until the end of 2024. These announcements are expected to give more visibility to the market about OPEC+ supply next year. Also, for the first time since April 2020, the meeting addressed the very thorny issue of baselines and quotas.  The formal output targets remained unchanged for the rest of 2023 but there will be adjustments in 2024. OPEC+ countries agreed to lower the targets for several countries that are struggling to meet their current production quotas (those are mainly the African producers) while raising the output target for other countries to reflect their expanding upstream capacity.

One of the key innovations in the latest agreement is the introduction of independent assessments of OPEC+ countries’ upstream capacities. In the past, each country used to declare its production capacity without any independent verification or assessment and for many countries, the declared capacities usually came at a much higher levels than the actual levels, as countries wanted to negotiate higher output quotas. In the new agreement, by end of June 2024, all OPEC+ countries will go through an assessment by independent bodies. On top of all these announcements, Saudi Arabia declared a voluntary cut of 1 million b/d. This is in addition to the voluntary cut of 500,000 b/d back in April. Saudi Arabia started 2023 from a production target of around 10.5 million b/d. With the 500,000 b/d reduction in April, this will take Saudi Arabia’s production to around 9 million b/d in July. At the broader level, there was a lot of talk about rifts between key OPEC+ countries, particularly there was some speculation that the UAE will leave the group as the UAE is not happy with its production target. This issue has been resolved and there is now a process on how to assess countries’ upstream capacities which will provide a much more objective, fairer, and more transparent way to calculate quotas in 2025 and beyond.