2023-07-03 18:20:41
A priori, this is not good news for consumers who are about to take their car to go on vacation. Russia and Saudi Arabia, the two main world oil exporters, announced on Monday July 3 a new reduction in their production.
It will only apply from August, but the markets have already reacted. In the middle of the afternoon, the barrel of Brent, the oil listed in Europe, was up 0.68%, at 75.42 dollars (69.17 €). Its American equivalent, the WTI barrel, was up 0.70% at 70.56 dollars (€64.71).
10% drop in Saudi oil supply
For Saudi Arabia, the decrease will be one million barrels per day (bpd), for an estimated extraction volume of 9.96 million barrels as of June 30, according to data from Eikon. That is about 10%, which is far from negligible. For its part, Russia will reduce its crude oil sales by 500,000 barrels per day next month. At the end of May, it produced 9.11 million per day.
These two measures are in fact an extension of measures already taken. At the beginning of June, the Saudi kingdom had already announced that it would lower its production by one million barrels in July. For its part, Russia had decided in February to reduce it by 500,000 barrels per day, explaining that this level would be maintained until the end of 2024.
Raise prices as soon as possible
For both countries, the objective is the same. It is a question of getting oil prices up as quickly as possible, while the trend is rather bearish due to signs of economic slowdown, particularly in Europe, and a recovery that is still awaited in China. Since the beginning of the year, the barrel of Brent has fallen by 12%, clearly below 80 dollars (73 €), from the end of April.
However, according to analysts, Saudi Arabia needs an oil price that is at least at this level to balance its budget, while the kingdom has undertaken major investment programs to modernize.
At the same time, Russia must finance its war in Ukraine, while the oil embargo decided by the West forces it to sell its crude cheaper. Since the start of the conflict, Moscow has redirected its energy exports from Europe to India and China, with discounts that can exceed 20%.
An impact difficult to measure
Despite the immediate reaction of the markets, which pushed prices up, it is too early to say whether the Russian and Saudi announcements will really be followed up. In May, the drop of 1.6 million barrels per day until the end of 2024, which was introduced by nine countries, including Russia and Saudi Arabia, but also Angola and Nigeria, finally had little impact. For what ? Because the drop in demand was greater than the drop in supply. Nothing says the same thing won’t happen now. Everything will depend on the evolution of Chinese demand.
Especially since among the major producers, unity is often a facade. For Saudi Arabia, this decision could reduce the kingdom’s market share, while some countries are demanding an increase in their production quotas, like the United Arab Emirates.
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