A gesture by Saudi Energy Minister Prince Abdulaziz bin Salman Al Saud upon his arrival at the 8th OPEC International Symposium in Vienna on July 5, 2023.
Alex Hallada | AFP | Getty Images
Heavy oil producers Saudi Arabia and Russia will extend their voluntary crude supply cuts until the end of the second quarter.
The two countries chair the grouping of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+.
Saudi Arabia will extend its voluntary crude oil production cut by one million barrels per day until the end of the second quarter, the state-owned Saudi Press Agency said on Sunday, citing an official source from the Saudi Ministry of Energy.
The announcement stated that Riyadh's crude oil production will reach about 9 million barrels per day until the end of June.
Russian Deputy Prime Minister Alexander Novak said that Russia will reduce its production and export supplies by 471,000 barrels per day until the end of June, according to a Google-translated report published by the Russian state-owned TASS agency. Moscow volunteered to reduce its supplies by a slightly higher amount of 500,000 barrels per day in the first quarter.
Saudi Arabia's voluntary production cut, which has been implemented since July last year, was scheduled to end at the end of this month. Several other members of OPEC and its allies, known as OPEC+, joined Riyadh in voluntary supply cuts totaling 2.2 million barrels per day through the end of the first quarter. It remains to be seen whether other OPEC+ countries will also extend their supplementary cuts until the end of the second quarter.
In November, OPEC+ countries pursued an official policy of collectively reducing their production by 2 million barrels per day until the end of 2024. Separately from the group's official strategy, several OPEC+ producers, including Saudi Arabia and Russia, announced They will do so voluntarily. They reduced their supplies by a total of 2.2 million barrels per day until the end of the first quarter of this year.
The latest announcement of production cuts comes against the backdrop of declining oil prices, which have largely ranged between $75 and $85 per barrel since the beginning of the year, despite OPEC+ supply cuts and ongoing Houthi naval attacks on the crucial Red Sea route and threats. The continued risk of an extension of the war waged by Israel against the Iranian-backed Palestinian Hamas movement in the Gaza Strip. Offsetting some of this short-term price support is lower demand amid impending seasonal refinery maintenance in China, the world's largest crude importer, which typically worsens in the second quarter.
Unlike formal policy changes, voluntary cuts do not require unanimous approval by the group during a formal meeting and go beyond the need to distribute production cuts or increases among OPEC+ members. Typically, OPEC+ countries do not object to extracurricular production adjustments, as long as they are in line with the spirit of current policy – currently, complementary cuts depend on existing OPEC+ cuts.
The group's next policy negotiations are scheduled for June, at which point independent third-party data providers will have finalized their assessments of the baselines for the productive capacity of group members – the levels to which each country is allocated a quota. A highly desirable higher baseline results in a higher production cap, allowing producers to benefit from more stable revenues in a rising price environment.
In a surprise move, Aramco, the oil giant controlled by Saudi Arabia, announced in late January that it would suspend its long-term plans to increase its crude oil production capacity from 12 million barrels per day to 13 million barrels per day by 2027, along with the Minister of Energy. Saudi. Later, Prince Abdulaziz bin Salman commented on the decision on the green transition.
