Saudi Arabia said on Monday it would extend a 1 million barrels-a-day cut in oil production it announced in June through at least August in a bid to drive up what officials consider stubbornly weak oil prices. The Saudis were joined by Russia, whose deputy prime minister, Alexander Novak, said Moscow would cut supplies by 500,000 barrels in August.
Together, these trims could amount to 1.5 percent of global inventories. Oil prices rose slightly after news of the cuts, with Brent oil, the global benchmark, rising above $76 a barrel before falling back slightly.
Oil prices have been under pressure in recent months due to uncertainty about the strength of the global economy as many central banks continue to raise interest rates to contain inflation. There are also doubts about the longer-term future of oil as electric vehicles and other alternatives to consuming oil continue to grow. The Saudis and other members of the OPEC Plus producer group have been gradually cutting production since last fall.
“This additional voluntary cut comes in reinforcement of precautions taken earlier,” the state-run Saudi news agency said. The latest round of Saudi production cuts began early this month. Russia’s proposed reduction in exports in August would come “as part of the effort to ensure that the oil market remains balanced,” Mr Novak said in a statement.
Monday’s announcements appear to be coordinated and intended to give the impression that Russia, co-chair of OPEC Plus, remains committed to the group’s efforts to control the market. “The intent here is to indicate that Saudi Arabia is not acting alone,” said Richard Bronze, chief of geopolitics at Energy Aspects, a research firm.
It is not clear how much supply Russia will actually cut. Russia has been under pressure from the Saudis and other members of OPEC Plus to go along with production cuts, but Moscow has been reluctant to sacrifice revenue that could be used to help fund the war in Ukraine. China and India are now buying the bulk of Russia’s oil exports by sea after international sanctions against Russia’s energy industry restricted sales to previous buyers in Europe and elsewhere.
Saudi oil minister Prince Abdulaziz bin Salman appears to want to show the markets that he will do whatever it takes to support prices. But the Saudis are in a difficult position where they are forced to bear the brunt of the austerity, fueling speculation about how long OPEC Plus will be able to maintain cohesion.
According to Saudi Arabia’s announcement, the kingdom’s oil production will now be just 9 million barrels per day – down nearly 2 million barrels per day from the third quarter of last year. The Saudis are investing heavily to increase their production capacity, but are instead being forced to slow down.