On the evening of June 2, OPEC+ officially reached an agreement on production reduction, including agreeing to extend the voluntary production reduction measures to the end of 2024 and the collective reduction measures to the end of 2025. Some insiders stated that the voluntary production reduction measures of 2.2 million barrels per day will be gradually eliminated from October 2024 to September 2025.

As a result, international crude oil prices plummeted overnight, reaching their lowest level in nearly four months. As of Monday's close, WTI crude oil futures for July fell 3.6% to $74.22 per barrel, and Brent crude oil futures for August fell 3.39% to $78.36 per barrel.

Both Hong Kong and A-share petroleum stocks have been hit, with Zhundong Petroleum Technology falling 5.42%, Renzhi, Beiken Energy, Tong Petrotech Corp., and Zhongman Petroleum and Natural Gas Group Corp.,LTD. falling over 3%.

In the Hong Kong stock market, CNOOC, PetroChina, and Kunlun Energy fell more than 1%, while Sinopec Corp. and China Oilfield Services Ltd. followed suit.

OPEC+ Production Cut Extension

According to the official website, the purpose of the OPEC+ meeting on June 2 was to strengthen the preventive efforts of OPEC+ countries, in order to support the stability and balance of the oil market. The meeting decided to extend the daily voluntary production reduction of 1.65 million barrels announced in April 2023 to the end of December 2025.

In addition, these countries will extend their plan to voluntarily reduce oil production by 2.2 million barrels per day announced in November 2023 until the end of September 2024. Then, the reduction of 2.2 million barrels per day will be canceled gradually on a monthly basis until the end of September 2025 to support market stability.

These voluntary reduction member countries include Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, and the United Arab Emirates.

At the same time, OPEC+ declared that the 38th OPEC and non-OPEC ministerial meeting will be held on December 1, 2024.

In fact, at the beginning of the meeting, OPEC representatives had already stated that OPEC+ had formulated an outline agreement to extend the key part of its oil production reduction to the second half of this year, as they continued to work to avoid global oversupply and support prices.

Industry insiders pointed out that although OPEC+ has extended its production cuts, it is actually paving the way for increased production. From the content of the agreement, it actually means that OPEC+ will start to increase supply to the market from October this year, and then increase it significantly next year.

Goldman Sachs: Brent crude oil may fall below $75-$90.

Since the end of 2022, OPEC+ has implemented a series of complex production reduction measures in the context of many factors such as high interest rates, high inflation, and continued weak global demand.

Regarding OPEC+’s extension of production cuts, Goldman Sachs pointed out that the results of this meeting are bearish for the market, and Brent crude oil prices may fall below the range of $75-$90. Although the clear-cut production reduction plan further reduces the possibility of a full-scale price war and supports the view that oil prices will stabilize in a certain range, the risk of this range is clearly biased downward at present.

At the same time, OPEC+ plans to curb oversupply by reducing production, but before 2025, eight countries including Saudi Arabia, Iraq, and Russia may gradually increase their output.

Senior oil analyst Gary Ross pointed out that investors have been uneasy about the oil market: "I'm not sure this agreement will make them feel safer."

It is expected that oil demand will increase by 1.5 million barrels/day this year, which is lower than OPEC+'s forecast.

"In addition to this agreement to extend production cuts by OPEC+, but in fact, it is paving the way for increased production. From the content of the agreement, it actually means that OPEC+ will start to increase supply to the market from October this year, and then increase it significantly next year."

"In addition to this agreement to extend production cuts by OPEC+, but in fact, it is paving the way for increased production. From the content of the agreement, it actually means that OPEC+ will start to increase supply to the market from October this year, and then increase it significantly next year."

Jim Burkhard, head of S&P Global Platts' Oil Research team, also believes that the extension of OPEC+ output cuts is expected, so the output cut statement itself is unlikely to have a long-term impact on oil prices, but the extension of output cuts increases the possibility of a summer decline in crude oil inventories, which could boost oil prices for a period of time.Once seasonal demand increases and inventories decrease, oil prices may rise.