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Home » Transportation & Distribution » Saudi Arabia Extends 1M-Barrel Oil Cut, Says It Can Be Deepened

Saudi Arabia Extends 1M-Barrel Oil Cut, Says It Can Be Deepened

SEVERAL BLUE BARRELS OF OIL CAN BE SEEN HUDDLED TOGETHER.

Photo: iStock.com/Guven Polat

August 4, 2023
Bloomberg

Saudi Arabia extended its unilateral oil production cut by another month and said it could be prolonged further or even deepened.

The leader of the Organization of Petroleum Exporting Countries (OPEC) will continue the cutback of 1 million barrels a day — launched during July — into September, according to a statement on the Saudi Press Agency. That will hold output at about 9 million barrels a day, the lowest level in years. Crude futures jumped following the announcement.

The measure — which comes on top of supply curbs Riyadh was already making with others in the OPEC+ producers group — is intended “to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets.” Its ally, Russia, also said it will extend its export curbs but taper them slightly.

Oil prices have recovered recently, reaching a three-month high above $85 a barrel during the week of July 31 in London, as the post-pandemic recovery in fuel demand, combined with output curbs by OPEC+ countries, begins to tighten global crude markets.

Read more: Saudi Arabia Hikes Its Oil Prices as Supply Cuts Extended

But with the economic outlook still clouded by lackluster data from China and fears of a recession in the U.S., Riyadh is showing no signs of relaxing its grip. Besides, the kingdom may need prices of as much as $100 a barrel to cover government spending, according to Bloomberg Economics.

Brent futures surged as much as 2.1% after the Saudi announcement on August 3, trading near $85 a barrel.

The decision to extend output cuts was in line with the expectations of traders and analysts surveyed by Bloomberg during the week of July 24. The kingdom’s hawkish approach has drawn criticism from major importing nations, which fear that rising fuel costs may inflict another inflationary spike on consumers and thwart central banks as they try to taper interest-rate increases.

The Saudis introduced the extra 1 million-barrel-a-day cut earlier during summer 2023 as a unilateral move, with most other members of the OPEC+ coalition already pumping below their assigned targets and unlikely to reduce supplies further.

Read more: Egypt Plans to Resume LNG Exports this Fall, Minister Says

It since has been joined by Russia, a member of the wider OPEC+ alliance, which appears to be finally delivering on pledges to lower shipments. Moscow had maintained exports for many months in order to maximize revenue for its war against Ukraine, but tanker-tracking data show that flows are starting to come down.

Russia will prolong a cut in its crude exports into September but taper it to 300,000 barrels a day from 500,000 a day in August, Deputy Prime Minister Alexander Novak said in a statement.

Defending the oil market has come at a cost for the Saudis. The kingdom suffered the sharpest downgrade to economic growth projections by the International Monetary Fund, which sees the country expanding by just 1.9% in 2023, a fraction of its performance in 2022.

The Saudis and Russia will chair an online review of market conditions by key OPEC+ nations August 4. The full 23-nation OPEC+ alliance is due to meet in late November.

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