Saudi Arabia and Russia, the world’s largest oil exporters, have announced additional oil production cuts. The decision aims to stabilize oil prices, which have faced high market volatility in recent times.
Saudi Arabia, a prominent member of the Organization of the Petroleum Exporting Countries (OPEC), declared its extension of a voluntary oil production cut by one million barrels per day. This move, which took effect immediately and will continue into August, serves as a proactive measure to support oil market stability and balance, according to an official source in the Energy Ministry. Moreover, the source hinted that the cut may be further extended beyond the specified period.
Meanwhile, Russia announced its decision to reduce crude exports by 500,000 barrels per day in August, strengthening efforts to balance the global oil market. Alexander Novak, Deputy Prime Minister of Russia, emphasized that this cut in exports complements the country’s existing 500,000-barrel-per-day reduction in crude oil production, which had been implemented since February 2023 and is scheduled to last until the end of 2024. These measures demonstrate Russia’s commitment to supporting Saudi Arabia’s strategy for market management.
The market response to the joint announcements from Riyadh and Moscow was relatively muted, with Brent crude, the European benchmark, rising by 0.98% to $76.15 per barrel, and West Texas Intermediate (WTI) up by 1.02% to $71.36 per barrel. However, some analysts expressed doubts about the long-term impact of these cuts on oil prices, citing the absence of a coordinated decision by all OPEC members.
Chris Beauchamp, an analyst at IG, highlighted the usual automatic reaction to production cut announcements but expressed skepticism about a sustained upward movement. Similarly, Jamie Ingram, an analyst at MEES, questioned Russia’s commitment to fully adhere to its latest commitments. Nevertheless, Ingram emphasized the importance of Russia’s public commitment in supporting Saudi Arabia’s market management strategy.
While the announcements may not have an immediate lasting effect on oil prices, Saudi Arabia remains focused on higher prices to finance its ambitious economic reform program. Analysts estimate that the kingdom requires oil prices around $80 per barrel to achieve a balanced budget, well above recent averages. The extension of production cuts by Saudi Arabia and Russia underscores the determination of major oil producers to address market challenges and create stability amidst ongoing geopolitical tensions and global economic uncertainties.
By: Montel Kamau
Serrari Financial Analyst
18th July 2023
Photo credit: Shutterstock
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