OPEC+ Plans Compound Thinning US Crude Stockpiles and Softer Outlook for Production

OPEC+’s extension of crude oil production target cuts into 2024, announced this past weekend, were compounded by the promise of a 1 million barrel cut to Saudi Arabia’s output in July. These drawdowns will put pressure on oil markets that are already seeing stockpiles begin to thin out. The US has experienced a particular narrowing of commercial stockpiles throughout the past two months, which has pushed the US’s measure of days of supply to its lowest level this year.

That comes as the US’s government stockpile of crude, known as the strategic petroleum reserve (SPR) continues to be drained. The halving of the SPR throughout the past two years leaves oil markets vulnerable to shocks, while the prospect of re-filling it at an aggressive pace threatens to put a floor under oil prices. The White House has said it wants to begin replenishing its SPR with oil purchased around $70.00 per barrel, but prices have once again ticked up beyond that level in the wake of OPEC+’s latest meeting.

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Over the weekend, member states of the Organization of the Petroleum Exporting Countries (OPEC), alongside several non-members that work with the cartel under the OPEC+ partnership, gathered in Vienna to discuss the bloc’s current and future levels of crude oil production. Through the month of May, an ongoing reduction of Russia’s supply, worth 500,000 barrels per day (bpd), as well as OPEC curbs of 2 million bpd announced late last year, the OPEC+ syndicate had already reduced their crude oil production targets by roughly 3.657 million bpd from peak output. According to Reuters calculations, those cuts were equivalent to roughly 3.7% of global demand. After the most recent meeting, OPEC+ producers agreed to extend their ongoing curbs through the end of 2024, taking 1.4 million bpd off of production targets. It’s worth noting that, although targets have been reduced, not all OPEC+ members have managed to reduce their output to the subdued levels that the syndicate has laid out on paper.

The other significant announcement from of Vienna last weekend was that Saudi Arabia will unilaterally cut another 1.0 million bpd of production in July, pushing daily output down to just 9.0 million barrels. That is a massive cutback from 11.0 million bpd the country was producing in late 2022 and an even bigger decline from a pre-pandemic peak of 12.0 million bpd. This reduction is subject to extension and may very well become…