When officials from major oil-producing countries met on Sunday, they had a difficult task ahead of them: reassuring unstable markets that they would continue to restrict oil supplies.
The group known as OPEC Plus, led by Saudi Arabia and including Russia, also wanted to offer some hope to disgruntled producers like the United Arab Emirates that they could soon get the go-ahead to pump more oil.
It is not surprising that the agreement reached on Sunday in Riyadh, the Saudi capital, is complex. They aim to boost oil prices by promising that deep production cuts will be extended into next year.
But it also implies a gradual elimination of part of the cuts. Starting in October, oil production from eight countries, including Saudi Arabia, the United Arab Emirates and Iraq, could gradually increase in monthly increments until 2025.
Saudi production, for example, would rise to nearly 10 million barrels per day by the end of 2025 from around nine million barrels currently, according to a table published by the Saudi government. That level is still well below Saudi Arabia’s 12 million barrels per day capacity.
Given the competing interests, the agreement is all the group could have achieved, according to one view.
“This is a decision that has to do with the here and now,” said Raad Alkadiri, senior associate in energy security and climate change at the Center for Strategic and International Studies, a research organization in Washington. “This is short-term market management in action.”
Alkadiri said he thought oil markets “would not be disappointed” with the package, knowing that OPEC Plus could always change course if circumstances changed. In fact, a press release from the group that met in Riyadh said that “monthly increases may be paused or reversed, subject to market conditions.”
This deal is also likely to be criticized for not doing enough to reduce the oil oversupply. “We are surprised that these countries are now announcing a detailed reduction” in cuts, given news of surprisingly high supplies, Goldman Sachs analysts wrote after Sunday’s meeting.
Gary Ross, a veteran oil analyst, said investors were already uncomfortable with oil. “I’m not sure this deal is going to make them feel any more secure,” said Ross, chief executive of Black Gold Investors, a trading firm.
Since late 2022, OPEC Plus has been forced to make a complex series of production cuts in an effort to boost prices.
Producing countries have largely accepted the market management program, but some countries have shown frustration at having to limit sales of a commodity that is crucial to many of their budgets.
The United Arab Emirates and Iraq, for example, have been producing well above agreed ceilings. This tactic appeared to have paid off for the United Arab Emirates, which was granted a gradual addition of 300,000 barrels per day to its official maximum limit.
The United Arab Emirates is investing heavily with foreign partners, including ConocoPhillips and TotalEnergies in France, to boost its oil-producing capacity, and the country is irritated by what it has said is a ceiling that does not reflect reality.
Brent crude, the international benchmark, sold on Friday at about $82 a barrel, well below the levels above $100 a barrel reached in 2022 after the Russian invasion of Ukraine, but still high enough to to generate strong profits for Western oil companies such as Shell and Exxon Mobil.
However, oil-producing countries would like to see even higher prices to pay for development costs and social programs, analysts said. In an effort to squeeze even more funds from the oil industry, Saudi Arabia on Sunday offered a small percentage of shares in the national oil company, Saudi Aramco, in a move that could raise up to $13 billion.