OPEC output cut extension positive for oil prices near-term, UBS says

OPEC+ Production Cuts Extended to December

Investing.com — The decision by OPEC+ to extend its production cuts through December is viewed by UBS analysts as a modest yet positive step for short-term oil prices.

This extension maintains a cut of 2.2 million barrels per day (Mb/d), an agreement initially established last year.

UBS noted that while this action aligns with their expectations, market speculations about a possible production increase had raised concerns before the announcement, making the continuation of cuts reassuring for price stability.

UBS highlights OPEC+'s cautious approach to reintroducing additional barrels to the market, especially as demand typically diminishes seasonally at this time of year.

A recent increase in production from Libya has somewhat alleviated supply constraints, further justifying OPEC+’s extended restraint.

This strategy indicates a prudent stance from OPEC+, especially given mixed compliance on compensation requirements from members like Iraq, Kazakhstan, and Russia, who exceeded previous production targets.

Looking beyond December, UBS anticipates that concerns regarding potential output increases will remain, as the group plans to review its policy in early December.

A more substantial production increase is currently projected for 2025, at which point OPEC+ will likely reassess market conditions and U.S. policy implications. UBS asserts that sluggish demand growth and stable output from non-OPEC sources could still prevent any significant increases.

“We see the market just about balanced next year with no unwind of the production cuts, which keeps Brent at an average $75/bbl in 2025 in our base case,” said the analysts.