OPEC+ surprises: short-term Saudi cuts and fairer burden-sharing in 2024 and 2025

GULF COUNTRIES - In Brief 04 Jun 2023 by Justin Alexander

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Summary Cuts extended into 2024 at 40.46m b/d, -3.3% below Oct 2022 targets but 1% above Feb 2023 actual.Allocations of 9 states cut by between -6% (Russia) to -42% (Equatorial Guinea) to match real capacity.10 states—including KSA, Kuwait, Oman, Bahrain and Iraq—will maintain the Oct 2022 allocations.UAE’s allocation will rise by 6.6% to 3.2m b/d, still less than the IEA’s estimate of its current output.The Gulf states will continue to bear most of the burden of OPEC+ cuts relative to real capacities.Independent assessments of capacities will permit fairer burden sharing from 2025.Saudi Arabia will make 1m b/d in voluntary cuts during July (or longer).The overall impact looks bullish for oil prices in both the short and medium term, and the futures should rise along the curve when markets open in Asia. Going into the OPEC+ meeting today, a Twitter survey by Energy Intelligence’s OPEC correspondent, Amena Bakr, found that 48% expected no changes, 33% deeper cuts, 3% increased supply and 16% a “surprise”. Ever the showman, the Saudi energy minister, Prince Abdulaziz, quipped ahead of the key meeting to the few reporters invited: “You guys have no idea what we are discussing”. The results of the meeting were complicated but actually ticked all four of the options in Amena Bakr’s Twitter poll in various ways. As regards the 2023 allocations, there were no changes in the formal OPEC+ announcement although it was confirmed that countries that made voluntary cuts from May would extend them until year-end, something which we had noted was never formally stated previously, although it had been widely assumed. This was in line with our baseline assumption, given the clear reluc...