Saudi Arabia and Russia Extend Oil Production Cuts to Boost Weak Prices
Saudi Arabia has announced that it will extend its cut in oil production by 1 million barrels per day through at least August. In a coordinated effort, Russia, a member of the OPEC Plus group, also revealed that it will cut its supplies by 500,000 barrels in August. Together, these reductions could make up 1.5 percent of global supplies.
Despite a initial spike in oil prices following the news of the cuts, prices later faded. Oil prices have been under pressure in recent months due to uncertainty surrounding the global economy and the rise of alternative energy sources like electric vehicles. Central banks’ efforts to curb inflation by raising interest rates have also contributed to weak oil prices.
The Saudi Press Agency stated that the additional voluntary cut is intended to reinforce previous precautionary efforts, while Russia’s proposed reduction aims to maintain market balance. The announcements were designed to reassure markets that Russia remains committed to managing the oil market alongside Saudi Arabia.
However, doubts exist regarding Russia’s actual commitment to the cuts. Russia has faced pressure from Saudi Arabia and OPEC Plus members to comply with output restrictions, but it has been hesitant to sacrifice revenue that is crucial for financing the war in Ukraine. Furthermore, international sanctions limiting oil sales to Europe and elsewhere have redirected Russia’s seaborne oil exports towards China and India.
Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, aims to demonstrate that he will take necessary steps to support prices. However, the burden of the cuts lies heavily on Saudi Arabia, raising questions about the long-term sustainability of OPEC Plus cohesion.
As per Saudi Arabia’s announcement, the kingdom’s oil production will now decrease to just 9 million barrels per day, marking a drop of nearly 2 million barrels per day compared to the third quarter of last year. Despite investing heavily to increase production capabilities, Saudi Arabia is compelled to limit production.