Saudi Arabia said on Monday it would extend oil production cuts of 1 million barrels per day that it announced in June until at least August, in a bid to push back what officials see as weakness in oil prices. Russia joined the Saudis, as its deputy prime minister, Alexander Novak, said Moscow would cut supplies by 500,000 barrels in August.
Together, these decorations could amount to 1.5 percent of the global supply. Oil prices initially jumped after news of the cuts but later faded.
Oil prices have been under pressure in recent months due to uncertainty about the strength of the global economy as many central banks continue to raise interest rates to stem inflation. There are also uncertainties about the long-term future of oil as electric cars and other oil consumption alternatives continue to grow. The Saudis and other members of the group of producers known as OPEC Plus have been gradually cutting back on production since last fall.
“This additional voluntary reduction comes to reinforce the precautionary efforts” that were made previously, according to the state administration Saudi Press Agency. The latest round of Saudi production cuts began at the beginning of this month. Russia’s proposed reduction in exports in August will come “as part of efforts to ensure that the oil market remains balanced,” Mr. Novak said. he said in a statement.
Monday’s announcements appear to have been coordinated and intended to create the impression that Russia, which co-chairs OPEC+, remains committed to the group’s efforts to manage the market. “The intent here is to signal that Saudi Arabia is not acting alone,” said Richard Bruns, head of geopolitics at research firm Energy Aspects.
It is not clear how much supply Russia will actually cut. Russia is under pressure from the Saudis and other members of OPEC+ to stick to production restrictions, but Moscow has been reluctant to sacrifice revenue that could be used to help fund the war in Ukraine. China and India now buy the bulk of Russia’s seaborne oil exports after international sanctions targeting Russia’s energy industry restricted sales to former buyers in Europe and elsewhere.
It appears that the Saudi Oil Minister, Prince Abdulaziz bin Salman, is trying to prove to the markets that he will do whatever is necessary to support prices. But the Saudis are in the difficult position of being forced to bear the brunt of the cuts, prompting speculation about how long OPEC+ will be able to hold together.
According to Saudi Arabia’s announcement, the kingdom’s oil production will now be 9 million barrels per day – down nearly 2 million barrels per day compared to the third quarter of last year. The Saudis are investing heavily to increase their production capabilities, but instead they are being forced to back off.
“Infuriatingly humble analyst. Bacon maven. Proud food specialist. Certified reader. Avid writer. Zombie advocate. Incurable problem solver.”