In a relatively surprise statement, OPEC+ have announced the much delayed, phased-in reversal in voluntary production cuts. Under the plan, this will bring back 2.2m b/d of headline production by the September 2026, along with UAE required production increasing by 300,000 b/d, nominally amounting to roughly an additional 139,000b/d coming back into the market every month.
This policy impacts production levels of 8 key producers in the group; Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman.
A number of these specific OPEC+ producers (UAE, Iraq & Kazakhstan) are currently over-producing relative to their allowances. The latest announcement makes reference to these overproducing nations submitting fresh plans for compensation for these excess barrels, with an intention that these adjustments are ‘front-loaded’. This contributes to the suggestion that the initial impact of the announcement and policy reversal may be more muted in the near term.
These overproducing nations set aside, other members of OPEC are also likely to see some downward pressure applied to production levels. The loss of Chevron’s Venezuela licence is likely to see, already limited, production levels drop and stay out of the market for the foreseeable future. Russian barrels continue to flow into the market, although the future of these barrels remain opaque; on one hand the stronger OFAC sanctions and policies of key buyers in India and Shandong put some downward pressure on Russia’s ability to market its barrels, whilst on the other the more dovish diplomatic overtures to Russia by the new US administration and efforts towards a ceasefire could help support the Russian oil industry. Plenty remains in flux when it comes to OPEC+ production over the coming months and years.
Fundamentally, it is sanctioned barrels under most pressure, with this OPEC+ policy reversal helping to bring, largely market based, barrels back onto the water. Therefore, it is likely that over time this policy will offer some significant upside to crude tankers over the next 18 months.
In addition to the OPEC+ policy reversal, there is expected to be significant non-OPEC production growth throughout 2025, led by the Americas, with growth of just over 1m b/d expected this year. It is this significant growth that has dramatically eroded the market share of OPEC+ and left the organisation stuck between managing prices and managing market share.
With these policy adjustments and in the face of continued demand uncertainty, the spectre of a global trade war and more barrels coming into the market from OPEC+ and non-OPEC, the crude price has come off significantly and has headed into the high US$ 60’s / bbl.
Sustained declines in the oil price could threaten the OPEC+ policy reversal, especially given the organisation’s announcement makes explicit mention that OPEC+ ‘remains adaptable to evolving conditions…. this gradual increase may be paused or reversed subject to market conditions.’ However, any sustained lower prices could also open the door for inventory gains and restocking activity, which could offer some tanker upside.
This announcement by OPEC+ at the very least begins the process of unwinding one of the key fundamental downward pressures on tanker freight over recent years, and contributes to a positive outlook, especially on crude tankers, over the medium term.
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