Saudi Arabia announced on Monday that it would cut its oil production by a million barrels a day in a bid to boost prices to half-mast. Russia then announced that it would cut its exports by 500,000 bpd in August.
These measures are the latest taken by major manufacturers to stabilize prices amid high market volatility, the ongoing fallout from the Russian invasion of Ukraine and the faltering economic recovery in China.
Saudi Arabia, a heavyweight in the Organization of the Petroleum Exporting Countries (OPEC), decided in early June to cut production again in hopes of raising prices.
That reduction, which came into effect this weekend, will continue in August and “may be extended beyond that period,” the kingdom’s official press agency said, citing an Energy Department source.
“The source confirmed that this additional voluntary reduction reinforces OPEC+ countries’ precautionary measures to support the stability and balance of oil markets,” the agency added.
This decision keeps the rich oil empire’s production at around nine million barrels a day.
Saudi Arabia’s energy minister announced the cut after the oil producers’ meeting last month, saying it may be “extensible”.
In April, several OPEC+ members decided to voluntarily cut production by more than a million barrels a day, a surprise move that briefly supported prices but failed to translate into a sustained increase.
Shortly after Saudi Arabia’s announcement on Monday, Russia said it would cut crude oil exports by 500,000 barrels a day in August.
“As part of efforts to balance the market, in August Russia will voluntarily reduce supplies to oil markets by 500,000 barrels per day by cutting exports by that amount,” Deputy Prime Minister Alexander Novak said, quoted by Russian news agencies.
Russia had already announced a 500,000 barrel per day reduction in its crude oil production in February 2023 and wanted to keep it until the end of 2024. The decision announced on Monday affects exports, not production.
Since the beginning of the conflict in Ukraine, Moscow has diverted its energy exports from Europe to India and China.
Algeria, another member of OPEC, also announced a 20,000 barrels-per-day cut in August, on top of a voluntary 48,000 barrels-per-day cut decided in April.
The decision was made “in support” of Saudi and Russian measures to promote “the stability and balance of oil markets,” Algeria’s energy ministry said, adding that the country’s production will be 940,000 bpd in August.
The market’s reaction to the announcements by Riyadh and Moscow, allies within OPEC+, which brings together OPEC members and other oil-exporting countries, has been relatively discreet.
Brent, Europe’s benchmark crude, rose 0.98% to $76.15 a barrel and its U.S. equivalent WTI rose 1.02% to $71.36 a barrel, far from the highs from March 2022 at the beginning of the conflict in Ukraine (almost $140).
“As this isn’t a coordinated decision by all OPEC+ members, it’s hard to imagine this being a real move higher,” said Chris Beauchamp, analyst at IG.
For Jamie Ingram, analyst at MEES, “Russia should not convince by fully complying with its commitments, but the most important thing is that it publicly commits to supporting the Saudi strategy of market management.”
Year-to-date, Brent is down 11% and WTI is down 7%.
Saudi Arabia, the world’s largest oil exporter, is betting on higher prices to fund an ambitious reform program that could help its economy move away from fossil fuels.
Analysts say the kingdom needs an oil price of $80 a barrel to balance its budget, well above average levels in recent years.