The International Energy Agency (IEA) has confirmed in its February Oil Market Report that the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, will commence a phased rollback of their voluntary production cuts starting in April 2025. These cuts, which played a pivotal role in stabilizing global oil markets throughout 2024, are set to be eased in response to shifting supply-demand dynamics and a more balanced inventory landscape.
In 2024, global crude oil production saw a modest decrease of approximately 120,000 barrels per day. However, this was offset by a rise in the production of natural gas liquids (NGLs) and biofuels. This uptick in alternative outputs helped compensate for the decline in crude and facilitated a rebalancing of inventories, which had been significantly drawn down earlier in the year. As a result, global oil supply is now closely aligned with demand, which stands at approximately 102.9 million barrels per day.
The upcoming shift in OPEC+ policy is expected to have multiple implications. On one hand, gradually increasing production may contribute to easing price volatility, which has remained a key concern for both producers and consumers. A more predictable supply pattern could foster market confidence and reduce speculative swings. On the other hand, there is apprehension that reintroducing additional barrels into the market could potentially lead to a surplus, especially if global demand growth underperforms projections.
Market analysts and investors are paying close attention to how these changes will unfold in the second quarter. The IEA noted that fundamentals are currently tighter, which might support prices despite the output increase. However, the durability of this support depends heavily on the pace of demand recovery in key markets such as China, India, and the United States.
OPEC+ will need to carefully monitor market indicators and remain flexible in their approach. Their ability to swiftly adjust production levels has proven critical in past cycles of volatility. As such, future strategy meetings will likely focus on aligning policy with real-time economic indicators and consumption trends.
Ultimately, the decision to start unwinding cuts marks a significant transition point in OPEC+’s management of the oil market. It underscores a cautious optimism about the state of the global economy while highlighting ongoing risks that could undermine this delicate balance.
