Saudi Arabia and Russia have confirmed their commitment to maintaining oil supply reductions of over 1 million barrels per day until the end of the year, even as geopolitical tensions in West Asia continue to unsettle global oil markets.
According to a Bloomberg report, leaders of the OPEC+ coalition jointly announced this decision in separate official statements on Sunday. Riyadh has significantly reduced its daily crude production by 1 million barrels, while Moscow is curbing its oil exports by 300,000 barrels. These actions are in addition to previous production cuts implemented with other OPEC+ member nations.
Saudi Arabia intends to review its production levels in the coming month and will consider the options of “extending the cut, deepening the cut, or increasing production,” as stated by the Saudi Press Agency.
Russia’s Deputy Prime Minister, Alexander Novak, echoed these sentiments in a separate statement.
Recent weeks have seen fluctuations in oil prices due to concerns about the conflict between Israel and Hamas potentially escalating into a larger regional conflict involving major crude producer Iran. On Friday, Brent futures closed just under $85 a barrel in London.
Should a broader conflict ensue, it might prompt both Saudi Arabia and Russia to reassess their planned production cuts. The International Energy Agency has warned about the potential risks posed by high fuel prices to global inflation and the economy. Nevertheless, for now, the Organisation of Petroleum Exporting Countries (OPEC) and its partners remain committed to keeping oil supplies under strict control.
Saudi Arabia, in particular, may be motivated to continue these production cuts as it seeks oil prices as high as $100, according to Bloomberg Economics. Such high prices are essential to fund ambitious projects like Neom, a futuristic city, and the acquisition of prominent athletes for domestic sports franchises. On the other hand, President Vladimir Putin relies on petroleum revenues to finance ongoing efforts related to the situation in Ukraine.
According to Bloomberg, Saudi Energy Minister Prince Abdulaziz bin Salman previously stated at the Future Investment Initiative conference in Riyadh that the kingdom’s oil-market strategy has been effective.
Additionally, signs of weakness in physical oil markets may incentivise Saudi Arabia to maintain its course. Declining profits in the fuel-making sector and rising freight costs for transporting crude across regions have posed challenges. Despite industry expectations, substantial inventory declines have yet to materialise, as observed by Goldman Sachs Group Inc.
Eurasia Group, a consultancy, suggests that Saudi Arabia might be compelled to extend its unilateral 1 million barrel-a-day production cut into 2024 if market conditions continue to deteriorate. The International Energy Agency predicts that a new surplus in supply will emerge early next year as demand growth slows significantly.
The entire OPEC+ coalition, comprised of 23 nations, is scheduled to convene for a ministerial meeting on November 26 to review the policy for 2024.
(With inputs from Bloomberg)
