Saudi Arabia extends voluntary oil production cuts into September

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Saudi Arabia will extend its crude oil production cuts, according to the state news agency SPA. The report said that an official source from the Ministry of Energy announced that Saudi Arabia will extend its voluntary cut of one million barrels per day, for another month to include the month of September.

The report added that the production cuts, which roughly equal one per cent of the crude market, could be extended or extended and deepened. In effect, the kingdom’s production for the month of September 2023 will be approximately 9 million barrels per day.

Saudi Arabia’s oil production cuts

It’s the second time the kingdom has extended the cut, which was first announced in June after a meeting of the alliance between Organization of the Petroleum Exporting Countries (OPEC), Russia, and other smaller producers.

The source also noted that this cut is in addition to the voluntary cut previously announced by the kingdom in April 2023, which extends until the end of December 2024.

Russia had announced plans to cut oil exports by 300,000 barrels per day, in September according to Bloomberg.

Brent crude prices, the world benchmark, jumped 1.5 per cent to $84.50 a barrel on news of the Saudi production cuts.

Saudi Arabia needs Brent crude to trade at around $81 a barrel in order to balance its budget, according to the International Monetary Fund. The kingdom’s growth outlook has been revised substantially, due to its oil production cuts, as compared to its performance in 2022.

Norbert Rücker, head of economics and Next Generation Research, Julius Baer, noted, “Saudi Arabia is unlikely to stick to its solo effort in the longer term, with most other oil-producing countries not sharing the production cut burden. The group itself has differing interests with some nations, such as the UAE, which is eager to reduce excessive spare production capacity, and others, such as Venezuela, growing exports unbound by quotas.”

“The bounce in oil prices could also prolong the US shale growth phase. Overall, the continued output cuts result in less supply tightness than perceived. China’s economy is still struggling, and Asian oil storage seems well-filled anecdotally. The market mood has moved from bearish to neutral, which likely added to the oil price bounce, and eased one element of tension in the market. We see oil prices trading at the upper end of a fundamentally justified range,” he added.