OPEC+ Calls Time on Output Cuts

Written By UT Austin

Sometimes patience is not rewarded. OPEC+ countries have maintained deep production cuts for several years in hopes that tighter market fundamentals would lead to a demand-induced price rebound. The market had different ideas. Robust non-OPEC production, higher Iranian exports, and resilient Russian output kept the oil market well supplied in 2023 and again last year, while persistent macroeconomic concerns—above all, China’s downturn—restrained demand. Market conditions today do not seem much better. But on March 3, OPEC announced that eight countries with 2.2 million barrels per day (b/d) in voluntary cuts would begin adding volumes back to the market next month. External and internal factors may be in play.

OPEC+ production arrangements usually require some deciphering, but current production cuts are especially complicated. In November 2023, Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman agreed tovoluntary production cuts totaling 2.2 million b/d. An earlier set of voluntary production cuts agreed in April 2023 had established 1.66 million b/d in production cuts, supplemented by a unilateral cut by Saudi Arabia in June 2023 of 1 million b/d. Earlier production cuts were made in October 2022. Already it was hard to keep score, and oil analyst Paul Horsnell memorably referred to the multiple layers of phased-in cuts as OPEC’s millefeuille.

Then in June 2024, the eight OPEC+ states with 2.2 million b/d in voluntary reductions shared a plan to phase out these cuts over 12 months. The goal was to cautiously raise output, while keeping a close eye on market conditions. But three times last year, these countries delayed the planned increases, while extending the proposed ramp-up from 12 to 18 months. By lengthening the timeline, OPEC+ erased most of the volume it had previously planned to add to the market in 2025. This was prudent market management, but did not suggest confidence in the demand outlook.

Source: International Energy Agency, Oil Market Report, February 2025

The main drag on global oil demand is China. For the decade through 2023, China delivered 60% of the world’s oil demand growth, but this engine has stalled out. Last year, China’s economic downturn as well as its ever-growing market share of electric vehicles kept fuel consumption flat, and its crude oil imports declined. China delivered just 150,000 b/d in oil demand growth last year, with the petrochemicals industry providing a boost. Non-OECD oil consumption will grow again this year, and India may supplant China as the world’s fastest-growing demand center. But China’s slowdown is an inflection point. 

This has all been rather discouraging to OPEC+. When sustained production cuts fail to deliver a price bounce, these producers suffer doubly from lower oil revenue and lower market share. Over the past year, OPEC+ has concentrated on production discipline, urging Iraq and Kazakhstan to submit “compensation cuts” to atone for their past sins. Iraq in particular enjoyed a few visits last year from OPEC leadership as well as the Saudi and Russian energy ministers. Naturally, countries such as the UAE that have been producing well below capacity are frustrated that Iraq, Kazakhstan, and Russia have over-produced with few consequences.

Now, OPEC+ has surprised the market by planning to increase output beginning in April. To be sure, this is a gradual increase rather than a shock-and-awe flooding of the market. The plan is to increase output by only 1.1 million b/d between April and December of this year. Still, why now? A few explanations are possible.

OPEC+ may feel confident that the market is turning. The March 3 statement referred to a “healthier market outlook,” and for some time OPEC’s demand outlook has been rosier than those of the International Energy Agency or the U.S. Energy Information Administration. The latest OPEC Monthly Oil Market Report forecasts global oil demand growth of 1.4 million b/d in 2025. However, it seems hard to square this view with the gathering economic storm of tariffs and trade wars. Macroeconomic signals are not encouraging.

The producers’ group may believe that U.S. shale growth is finally set to plateau, after years of defying bearish forecasts and finding new ways to squeeze more production from fewer rigs. Indeed, many expect a slowdown in annual growth in the U.S. shale patch, with continued capital discipline, greater consolidation, and a potential depletion of drilling inventory in shale sweet spots all playing a role.

It is possible that OPEC sees some benefits in offering an early win to the Trump administration. The U.S. president has already advised OPEC+ to turn on the taps to benefit global consumers. Perhaps the thinking is that Riyadh, Abu Dhabi, and others can demonstrate shared interests with Trump, who has suggested a dizzying array of tariffs, sanctions, and sanctions relief measures that could curtail Iranian oil exports, produce a scramble for medium sour crudes, cut Venezuelan production, or produce myriad other effects. Offering an olive branch to an unpredictable president could signal that OPEC+ spare capacity can help backstop White House actions. However, this explanation seems a bit Washington-centric.

In the end, perhaps it’s best to look within OPEC+. At some point it was necessary to call time on the voluntary production cuts. By sticking with the plan and pursuing only a gradual increase, OPEC+ can gauge the market reaction, alleviate some of the pressure from OPEC+ members itching to increase their output—and perhaps demonstrate the consequences of lower oil prices. Short-term pain is inevitable, and Brent crude prices dropped toward $70 per barrel on Tuesday. But these gradual production increases could both test the resilience of U.S. shale producers, and remind recalcitrant OPEC+ states of what happens when market discipline fades.

About the Author       

Ben Cahill is Director for Energy Markets and Policy at the Center for Energy and Environmental Systems Analysis, University of Texas at Austin. 

UT Austin