How Large Are OPEC+ Production Cuts, Really?
How Large Are OPEC+ Production Cuts, Really?
Realized production cuts, at ~3-4 MMbpd vs Oct 2022 levels, are notably smaller than official quota cuts—but still more than enough to sink crude prices if eased entirely and must be carefully managed
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Oil balances remain reasonably tight in the third quarter of 2024 but, as I often stress, this tightness is an explicit policy choice by OPEC+, which is withholding material volumes of crude oil from the market. How much, exactly?
At the highest level, OPEC+ has committed to cuts of its collective production quotas (“quota cuts”) of roughly 5.8 MMbpd through three tranches of cuts initiated between late-2022 and late 2023.
But “reported production cuts” are closer to 4 MMbpd (compared to October 2022 levels), a substantial delta due to prior quota underproduction and adjusting for increased production from previously underproducing members.
Finally, there are “realized market supply cuts”, which, if assessed conservatively, equate to nearer 3 MMbpd; while much smaller—and less of a bearish tail risk—than the fully claimed 5.8 MMbpd of quota cuts, this is still a hefty volume of supply support that needs to be gradually wound down.
The greatest tail risk to oil markets isn’t simply the easing of these cuts but a full-blown dissolution of the current production agreement; even the most conservatives of truly withheld market supply indicate that it's still more than enough to swamp markets if the deal ever collapses.
OPEC+’s ongoing willingness to durably defend its ~$80-90/bbl crude price target is the single largest discretionary “unknown” in the market today. Oil balances remain reasonably tight in the third quarter of 2024 but, as I often stress, this tightness is an explicit policy choice by OPEC+. Current market tightness is deliberately supported by OPEC+’s crisis-level production cuts—the largest such cuts, excluding the record COVID-era support, since the 2008–09 financial crisis. The producer group has recently communicated a plan to ease the latest tranche of cuts back into the market over the coming year, which, while always “conditional on market conditions”, is enough oil to flip the market into material surplus and sink prices according to most forecasts (see: OPEC’s Plan and Oil’s Next 18 Months).
But the greatest risk to oil markets isn’t simply the easing of cuts: it’s a full-blown and disorderly dissolution of the current production agreement. We’ll call this OPEC’s “barrels at risk”, and there’s considerable debate as to exactly how much supply OPEC+ is actually holding back. I’ll try to keep things simple for the sake of this post, but data varies considerably between sources and the debate is even further clouded by OPEC+’s own byzantine system of production baselines, quotas, and ad hoc rules that have evolved over the past half-decade. This complexity (confusion?) is an OPEC+ policy feature, not a bug; the proliferating rule set is, to a large degree, a result of ad hoc political compromises rather than purposeful obfuscation, and speaks to the challenge of holding such a large membership together for this long—not dissimilar to herding cats.
For this post, I want to put some numbers to the question of how much oil OPEC+ is holding from the market. Specifically, let’s review three different measures of the OPEC+ cuts relative to October 2022 (i.e., when the latest cutting cycle began anew):
Committed cuts to collective quotas (“quota cuts”), which stand at roughly 5.8 MMbpd
Reported reductions in crude output (“reported production cuts”), around 4 MMbpd, and
“Realized market supply cuts” as estimated with the help of third-party export tracking (i.e., independent tanker tracking data), which stand nearer 3 MMbpd.
Let’s dig deeper into each.