Saudi Arabia, Russia to Continue Voluntary Oil Cuts
The two major global oil producers Saudi Arabia and Russia reaffirmed their commitment to further oil production cuts through to the end of the year on Sunday. The move by the OPEC+ members comes as tensions in the Middle East continue to weigh on the global crude oil markets....
The two major global oil producers Saudi Arabia and Russia reaffirmed their commitment to further oil production cuts through to the end of the year on Sunday. The move by the OPEC+ members comes as tensions in the Middle East continue to weigh on the global crude oil markets.1
Saudi Arabia — the world's leading oil exporter — will maintain a voluntary production cut of 1M barrels per day that began in July, reducing output to about 9M barrels per day (bpd) in December, an official source from the kingdom's energy ministry said. The source added that the decision will be reviewed next month.2
Russia, in turn, will voluntarily continue the cuts in oil and oil products by 300K barrels per day until the end of the year, Deputy Prime Minister Aleksandr Novak announced on Sunday. The measure follows Moscow's decision last April to cut oil production by 500K bpd, effective until late Dec. 2024.3
Following the announcement by the world's top oil exporters, in line with analysts' expectations, oil prices picked up moderately on Monday. Brent crude futures rose 41 cents, or 0.5%, to $85.30 per barrel, while US crude West Texas Intermediate rose 54 cents, or 0.7%, to $81.05 per barrel.4
While oil prices are currently forecast to fall to $81 per barrel, the World Bank recently warned that oil prices could rise to between $140 and $157 per barrel if the conflict in the Middle East escalates further. This scenario would trigger a sharp rise in global energy and food prices.5
OPEC+, comprising the members of the Organization of the Petroleum Exporting Countries (OPEC) and key allies including Russia, has been cutting output since 2023. The move, which the alliance says is aimed at ensuring global market stability, was criticized by US President Joe Biden, who warned Riyadh of 'consequences' in 2022.6
Narrative A, as provided by CNN. While OPEC leader, Saudi Arabia, pretends that the continued production cuts are aimed at stabilizing the global crude oil market, the main goal is to boost prices. By cutting supply, however, Saudi Arabia is shooting itself in the foot, as Saudi Gross Domestic Product continues to shrink as a result and this development is only partially offset by growth in non-oil sectors. The Saudis are facing a dilemma, as global recessionary risks are affecting global oil demand, yet the Kingdom will have to phase out the production cuts in order to get back on track for growth.
Narrative B, as provided by Asharq Al-Awsat. The decision by Saudi Arabia and Russia to voluntarily continue to cut oil production reflects OPEC's proactive policy to limit global oil market volatility and is not price-driven. Thanks to the precautionary measures, which are regularly reviewed, the global oil market is moving in the right direction of a balanced supply-demand balance. In order to keep the market stable as demand is expected to increase due to the global economic recovery, the world needs to ramp up investment in all types of energy sources, including oil.
Narrative C, as provided by Bloomberg. While Riyadh and Moscow officially maintain close cooperation, in reality, that partnership is eroding when it comes to output cuts. While Saudi Arabia continues to carry the main burden of balancing the oil market and propping up prices, exports of Russian crude oil are rising, with Moscow recently reducing its promised production cuts. This is no surprise as Russia's natural gas exports have fallen sharply and Moscow is even more reliant on its oil sales to fund its war effort in Ukraine. This issue is likely to come up at the next OPEC+ meeting.