Saudi Arabia extends voluntary cut

Saudi Arabia on Wednesday extended its one million barrel per day (bpd) voluntary crude oil production cut until the end of the year 2023.

An official source at the Ministry of Energy announced that the Kingdom would continue with its voluntary oil output cut of one million bpd for the month of November and until the end of the year and that it would review the decision again next month.

The Kingdom’s production for November and December will be approximately 9 million bpd, the ministry said in a statement, carried by the Saudi Press Agency. “This voluntary cut decision will be reviewed next month to consider deepening the cut or increasing production,” the statement said.

Saudi Arabia first implemented the additional voluntary cut in July and has since extended it on a monthly basis. The cut adds to 1.66 million barrels per day of other voluntary crude output declines that some members of OPEC have put in place until the end of 2024.

The source also explained that this reduction is in addition to the voluntary reduction that the Kingdom had previously announced in April 2023 and which extends until the end of December 2024.

Russia also pledged to voluntarily reduce exports by 500,000 barrels per day in August and by 300,000 barrels per day in September. The cuts are described as voluntary because they are outside of OPEC Plus official policy, which commits every nonexempt member to a share of production quotas.

The ministry source confirmed that this additional voluntary reduction comes to strengthen the precautionary efforts made by OPEC Plus countries with the aim of supporting the stability and balance of oil markets.

 

 

Saudi Arabia, Russia extend production cuts

According to Reuters, Oil prices surged about 2% on Tuesday to their highest since November last year, after Saudi Arabia and Russia extended their voluntary supply cuts to the end of the year 2023, worrying investors about potential shortages during peak winter demand.

Brent crude futures rose by US$1.32, or about 1.5%, to US$90.32 a barrel by 1739 GMT. The global benchmark, used to price over three-quarters of the world's traded oil, rose to US$91.15 per barrel earlier in the session, its highest since November 17, 2022.

US West Texas Intermediate crude (WTI) futures rose US$1.49, or about 1.7%, to US$87.04 a barrel, after also hitting a 10-month high of US$88.07 earlier in the session.

Investors had expected Saudi Arabia and Russia to extend voluntary cuts into October, but the three-month extension was unexpected.

"Certainly the market was caught off-guard by the aggressiveness of their stance," said John Kilduff, partner at Again Capital LLC in New York.

Both Saudi Arabia and Russia said they would review the supply cuts monthly, and could modify them depending on market conditions.

"With the production cut extended, we anticipate a market deficit of more than 1.5 million barrels per day in 4Q23," UBS analyst Giovanni Staunovo wrote in a note to clients. UBS now expects Brent crude to rise to US$95 a barrel by end 2023.

Reflecting concerns about the short-term market supply, front month Brent and WTI contracts were also trading at their steepest premium since November 2022 to later-dated prices. This structure, called backwardation, indicates tightening supply for prompt deliveries.

Also supporting oil prices on Tuesday, Goldman Sachs said it now sees the probability of a US recession starting in the next 12 months at 15%, down from an earlier forecast of 20%.

Along with the Saudi supply cuts, which began in July, prospects of the US economy avoiding a hard recession have helped lift oil demand and prices in recent months.

Both Brent and WTI futures have gained more than 20% since the end of June this year.