OPEC+ Delays Oil Output Hike: What Does It Mean?

OPEC+ will delay its plan to raise oil output which was originally set to start in January, an OPEC+ source said.

The company is doing this with the intention to provide additional support for the oil market in 2025.

OPEC+ is a firm that is responsible for pumping about half the world's oil. It was planning to begin unwinding output cuts through 2025.

However, due to a slowdown in global demand and rising output, the company is not able to follow through with these plans and the group has weighed on the prices.

Why Is There A Slowdown In Global Demand For Oil?

According to the International Energy Agency (IEA), there is a weaker demand in China for oil. Amid several changes in the Chinese economy and the rising use of electric vehicles, within the country, global oil demand growth is down sharply this year as compared to the rates seen in previous years.

The recent downturn in China has been acute and oil demand in July has declined severely on an annual basis for the fourth month consecutively. China's overall economic growth is also slowing. Additionally, the burgeoning domestic sales of vehicles powered by alternative fuels are reducing oil demand.

According to an IEA report, oil demand growth outside of China is tepid at best.

What Is OPEC+ Planning To Do?

According to OPEC+ sources, that decline to be identified by name said that output cuts for the upcoming three months is the most likely outcome. Some others say that a longer period is possible.

"There will be no surprise decisions," one of the sources was cited in a Reuters report.

OPEC+ is the Organisation of the Petroleum Exporting Countries and allies like Russia. It has reportedly started its online talks for which a monitoring group of top ministers was scheduled to gather ahead of the full OPEC+.

Despite the groups supply cuts, the global oil benchmark Brent crude has stayed within a range of USD 70 to USD 80 per barrel, this year and on Thursday it traded at USD 73 per barrel.

The group and its members are holding back approximately 5.86 million barrels per day which is about 5.7 % of global demand, as part of a series of steps that they have taken to support the global market since 2022.

An output hike of 180,000 bpd (barrel per day) which is a fraction of the total that was planned for January from the eight members involved in OPEC+'s most recent cuts of 2.2 bpd.

Due to falling prices, ever since October, the hike has been delayed.

Earlier, the group had also agreed to an output hike of 300,000 bpd for the United Arab Emirates, which needs to be addressed. This is scheduled to start in January 2025 and will be phased in gradually.

(with Reuters inputs)