UBS analysts view OPEC+’s decision to extend production cuts through December as a modest but favorable move for short-term oil prices. The extension keeps the reduction at 2.2 million barrels per day (Mb/d), part of an agreement established last year. UBS highlighted that while this decision aligns with their forecasts, market speculation about a possible increase in production had created concerns before the announcement, making the continuation of cuts a reassuring factor for price stability.
UBS notes that OPEC+ is exercising caution about increasing production, especially since demand typically decreases seasonally during this period. An unexpected rise in output from Libya has already eased some supply constraints, further supporting OPEC+’s decision to maintain current production limits.
This strategy demonstrates a careful approach from OPEC+, particularly in light of inconsistent adherence to compensation requirements from countries like Iraq, Kazakhstan, and Russia, which have surpassed their previous production targets.
Looking ahead to December, UBS expects concerns about possible production increases to continue, as the group is set to reassess its policy in early December.
A significant increase in production is planned for 2025, when OPEC+ is expected to reevaluate market conditions and the effects of U.S. policies. However, UBS suggests that slow demand growth and steady output from non-OPEC producers may limit any substantial increases.
“We anticipate the market will be nearly balanced next year, with no reversal of production cuts, which would maintain Brent prices at an average of $75 per barrel in our base case,” the analysts stated.
