Saudi Arabia said on Monday it would extend the one million barrels a day oil production cut it announced in June until at least August in a bid to boost what authorities say is stubbornly weak oil prices. The Saudis were joined by Russia, whose deputy prime minister Alexander Novak said Moscow would cut supplies by 500,000 barrels in August.
Together, these trimmings could account for 1.5 percent of global supply. Oil prices initially rose on news of the cuts but later eased.
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 in a bid to curb inflation. There are also doubts about oil’s longer-term future as electric vehicles and other alternatives to oil use continue to proliferate. The Saudis and other members of the producer group OPEC Plus have gradually scaled back production since last fall.
“This additional voluntary cut serves to reinforce the precautionary measures taken previously,” the Saudi state press agency said. The latest round of Saudi production cuts began earlier this month. Russia’s proposed reduction in exports in August would come “as part of efforts to ensure the oil market remains in balance,” Mr Novak said in a statement.
Monday’s announcements appear to have been coordinated and are designed to give the impression that Russia, which chairs OPEC Plus, remains committed to the group’s efforts to steer the market. “The intent here is to signal that Saudi Arabia is not acting alone,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm.
It is unclear how much Russia will actually cut its supply. Russia has been under pressure from the Saudis and other members of OPEC Plus to agree to the production cuts, but Moscow has been reluctant to sacrifice revenues that could be used to fund the war in Ukraine. China and India are now buying the bulk of Russia’s sea oil exports after international sanctions on Russia’s energy industry restricted sales to previous buyers in Europe and elsewhere.
Saudi Oil Minister Prince Abdulaziz bin Salman appears to be showing markets he will do whatever is necessary to support prices. But the Saudis are in a difficult position as they are forced to shoulder the brunt of the cuts, prompting speculation about how long OPEC Plus will be able to maintain cohesion.
According to Saudi Arabia’s announcement, the kingdom’s oil production will now be just nine million barrels per day – down almost two million barrels per day from the third quarter of last year. The Saudis are investing heavily to increase their manufacturing capacity, but are instead being forced to scale back production.