Saudi Arabia, Russia extend oil production cuts to end of year
(Bloomberg) – Saudi Arabia and Russia prolonged their unilateral oil production curbs by another three months, a more aggressive move than traders had been expecting as the OPEC members seek to support a fragile global market.
The leader of the Organization of Petroleum Exporting Countries will continue its production cutback of 1 MMbpd until December, according to a statement published by the state Saudi Press Agency on Tuesday. The move will hold production at about 9 MMbpd— the lowest level in several years — for six months in total.
Russia’s export reduction of 300,000 bpd will be extended for the same duration, Deputy Prime Minister Alexander Novak said in a separate statement.
“This voluntary cut decision will be reviewed monthly to consider deepening the cut or increasing production,” according to the statement published by SPA. Saudi Arabia is aiming to support “the stability and balance of oil markets.”
Global crude markets are tightening as demand climbs toward record levels, and summer’s price rally has resumed despite mounting concern over economic growth in China. The move by Riyadh and Moscow exceeded market expectations for an extension of just one additional month, sending Brent crude, the international benchmark, up by 1.54% to $90.37 a barrel as of 2:38 p.m. in London.
The Saudis introduced their additional production cut in July, deepening reductions already made with partners in the OPEC alliance. With most members of the coalition already suffering output losses due to underinvestment and operational disruptions, Riyadh opted to make a largely solo initiative to support prices.
Major consuming nations have criticized the kingdom and its partners for the intervention, just as global fuel demand is climbing toward record levels and inventories are depleting. A renewed inflationary spike would squeeze consumers and endanger the recovery, they warn.
Defending the market has come at a cost for the Saudis. The kingdom suffered the sharpest downgrade to economic growth projections by the International Monetary Fund because of the sales volumes it is losing. Yet this appears to be an acceptable price for the kingdom, which may need oil at almost $100 a barrel to cover the ambitious spending projects of Crown Prince Mohammed bin Salman, according to Bloomberg Economics.
“There is no sign that Saudi Arabia will shift away from its current price-over-volume strategy,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “Price over volume is the name of the game.”