Why is OPEC+ Cutting Output while Russia Exports?

If Russia cuts exports, it has no choice but to slash production (with 5 Charts)

Some analysts and journalists were scratching their heads on November 30 as several OPEC+ members announced their voluntary production cuts while Russia agreed to two “export” cuts: 300,000 b/d of crude and 200,000 b/d of fuel oil.  So, why is Russia cutting exports and not output like other producers in OPEC+?  We answer this question below after a brief review of the OPEC+ meeting on November 30.

OPEC+ Meeting

Last week, we published a post that outlined the possible scenarios of the OPEC+ meeting and it was Scenario 2 that happened when the oil group met virtually on Nov 30: OPEC as a group did NOT agree on additional cuts. Instead, Saudi Arabia and its allies within OPEC+ deepened their existing voluntary cuts. That was the easiest decision, but it was costly as prices declined, and they are expected to drop further in Q1 2024. 

The announced cuts are outlined in Figure (1) below.  The total slightly defers depending on the source of the data: 2.191 m b/d, 2.193 m b/d, and 2.194 mb/d.  Most of the difference is related to what OPEC announced versus what Iraq announced, and it is in the third digit.  While that’s not a big deal since the difference is very small, we wanted to clarify it to our readers.

Resorting to voluntary cuts could become the norm for OPEC and OPEC+.  We believe that once the current OPEC+ cuts—which were agreed to in October 2022— end on December 31, 2024, as scheduled, all future cuts will become voluntary and they will be announced individually by each member and without having to hold a press conference.  This is a new legal development that is important for the future of OPEC+ but has no impact on the role of OPEC+ and no impact on the oil market.  It will also allow new members to join, just like the recent announcement of Brazil joining the group next year.

OPEC+ production has been virtually flat recently and could slightly increase in December.  However, it is expected to decline in the first quarter of 2024 relative to Q1 and Q4 2023 as some countries cut production.  The estimated average YoY decline in Q1 2024 is about 1.2 mb/d.  Oil prices declined in Q1 2023 because OPEC+ did not announce a cut in December 2022 for Q1 2023.