What to expect from OPEC+’s Dec 5 meeting on output cuts for 2025

Crude oil prices have increased 2 percent in the week ahead of the OPEC meeting.

The oil cartel, Organization of Petroleum Exporting Countries and its allies (commonly known as OPEC+) is set to meet on December 5 to discuss the group’s policy on output cuts for 2025.

OPEC+ constitutes 12 member countries that account for a significant portion of India's oil imports. The meeting is crucial because it determines supply of oil in the market.

Crude oil prices have increased 2 percent in the week ahead of the OPEC meeting with prices hovering around $73 per barrel on December 4. The group, responsible for over 40 percent of the world’s total oil production, had postponed the meeting from December 1 due to a clash with another event in the Middle-East.

Moneycontrol looks at the expectations around the OPEC meeting and its impact on India.

What is expected from the OPEC meeting?

With crude oil prices largely trading below $75 a barrel in the second-half of 2024, OPEC will  continue the supply cuts for three more months (or the first quarter of calendar year 2025) to support prices. The OPEC has been cautious in increasing the group’s output, which was originally scheduled to begin in October 2024, as crude prices have remained weak in recent months.

Despite the group’s anticipated decision to delay increase in supply, some countries including Russia, UAE and Kazakhstan are expected to resist the delay in increasing oil supply. The United Arab Emirates (UAE) has already been granted the right to ramp up production by 3,00,000 barrels per day. Several Middle-Eastern countries have been willing to increase output to increase their respective revenues.

What are the supply cuts in place by OPEC?

The Saudi-led oil cartel on June 2 had decided to continue the voluntary cuts of 2.2 million barrels per day (bpd) till September 2024. Thereafter, the group had decided to phase out the supply cuts over a year, i.e. till September 2025, in a monthly exercise. OPEC had warned that the monthly increase in production after September 2024 could be paused or reversed based on market conditions.

On account of a significant drop in crude oil prices due to weak demand, the group has delayed the increase in supply till December 2024.

OPEC+ has currently put in place a total production cut of around 6 million bpd, accounting for almost six percent of the world’s total production. Of this, a production cut of 3.66 million bpd is to be implemented till the end of 2024, while the voluntary cuts of 2.2 million bpd expired in June and was extended till September 2024.

Why has OPEC been unable to support prices?

Despite efforts by OPEC to support prices by extending output cuts, crude oil prices have continued on the downward trend.

Weak demand from China, the world’s largest oil importer, and an expected oil glut in the market due to rising supplies from non-OPEC countries such as the US have weighed on prices. Oil prices have also remained low amid forecasts over weak global demand expected in 2025.

Lower crude oil prices are a big positive for oil importing countries such as India, as it would translate into a lower import bill for the country.

How have prices behaved so far in 2024?

Weak global oil demand, primarily from China, and the possibility of an oversupply in the market has weighed on prices with crude oil hovering at $72-$74 per barrel currently. In recent months, oil prices have largely remained unaffected despite geopolitical tensions.

Global oil prices have been highly volatile this year, breaching the $90 per barrel in April due to the geopolitical crisis in the Middle East, before plummeting to around $70-72 a barrel due to demand concerns from China. The benchmark Brent crude slid to $69 on September 10, the lowest in three years on demand worries.

The first half of the year saw relatively high prices on account of supply cuts from OPEC and its allies (OPEC+) and tensions in the Middle East. However, the prices soon began falling due to limited impact of war on the crude oil market and weak global oil demand.

What would be the impact on India?

India, which is dependent on imports for over 85 percent of its oil needs, would be unaffected by the OPEC’s decision on output cuts as the country’s current oil supply is secured. India’s oil minister Hardeep Singh Puri has said that major oil consuming geographies are unlikely to face a fuel shortfall as oil producing countries such as US, Guyana are ramping up supplies.

The crude movement, however, would impact the country. If oil prices rise as a result of the meeting’s decision, Indian oil companies would be impacted. Higher oil prices translate into lower margins for state-run oil marketing companies (OMCs) including Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL).