Saudi Arabia will extend the reduction in its oil production by one million barrels per day (bd) to push prices up, the energy ministry said on Monday, as Russia announced it would cut its exports by 500,000 bd in August.
Major oil producers are trying to stabilize prices in a volatile market caused by Russia’s invasion of Ukraine and China’s faltering economic recovery.
Saudi Arabia, the heavyweight within the Organization of the Petroleum Exporting Countries (OPEC), decided in early June within the framework of the so-called OPEC+ (the members of the cartel plus ten partners) a new production cut with the hope of making raise prices.
In the case of Saudi Arabia, this voluntary reduction, which came into force this weekend, will continue in August and “may extend” beyond this period, the official Saudi press agency said, citing a source from the Ministry of Energy.
“The source confirmed that this additional voluntary reduction reinforces the precautionary measures taken by the OPEC+ countries to support the stability and balance of the oil markets,” the press agency added.
This decision means keeping Saudi production at around 9 million barrels per day.
Saudi Energy Minister Prince Abdelaziz bin Salman already clarified last month after the OPEC meeting that the cut was “extendable.”
In April, several OPEC+ members decided to voluntarily cut their production by more than a million barrels a day, a surprise move that pushed prices up briefly but not sustainably.
“Balance the Market”
Shortly after Saudi Arabia’s announcement, Russia said it will cut oil exports by 500,000 barrels a day in August.
“As part of efforts to balance the market, Russia will voluntarily reduce deliveries to oil markets by 500,000 barrels per day in August,” Deputy Prime Minister Alexander Novak was quoted as saying by Russian news agencies.
Russia had already announced in February of this year a reduction in its oil production of 500,000 barrels per day, a measure that it said it wanted to maintain until the end of 2024.
The decision announced on Monday concerns exports, not production.
Since the start of the conflict in Ukraine, Moscow has redirected its energy exports from Europe to India and China.
Algeria, another member of OPEC, also announced that it will cut its production by 20,000 barrels per day in August, a reduction that is added to the one already voluntarily adopted in April, of 48,000 barrels per day.
The decision was made “in support” of the measures by Saudi Arabia and Russia to promote “the stability and balance of the oil markets,” the Algerian Ministry of Energy said, adding that the country’s production in August will be 940,000 barrels. diaries.
The market reaction to Monday’s announcements from OPEC+ allies Saudi Arabia and Russia was relatively muted.
Brent, the benchmark crude in Europe, rose 0.98% to $76.15 a barrel and its equivalent in the United States, WTI, rose 1.02% to $71.36 a barrel, far from the March 2022 highs (almost $140) when the conflict in Ukraine began.
However, several analysts expressed doubts that these announcements will have a lasting impact on prices.
“It’s the usual automatic reaction to production cut announcements,” said Chris Beauchamp, an analyst at IG. “But since this is not a coordinated decision by all OPEC+ members, it is hard to imagine that this is a true bullish move.”
For Jamie Ingram, an analyst at MEES, “Russia should not be convinced that it will fully respect its latest commitments, but what is most important is that it is a public commitment to support the Saudi market management strategy.”
So far this year, Brent has fallen 11% and WTI 7%.
Saudi Arabia, the world‘s biggest oil exporter, is aiming for high prices for its oil to finance an ambitious reform program that could allow its economy to move away from fossil fuels.
But analysts believe the country needs oil at $80 a barrel to balance its budget, a price well above the average for recent years.