Saudi Arabia continues to cut production to boost oil prices

Saudi Energy Minister Prince Abdulaziz bin Salman Al Saud arrives for the 35th OPEC (Organization of Petroleum Exporting Countries) and Non-OPEC Ministerial Meeting in Vienna, Austria, June 4, 2023. OPEC+ ministers are meeting to try to find a solution to falling oil prices with the possibility of further production cuts on the horizon amid tensions between Moscow and Riyadh. (Photo by JOE CLAMAR/AFP)

VIENNA, 4 June 2023 (AFP). On Sunday, Riyadh announced a new cut in oil production after a meeting of major producers to support prices, despite fears of a recession.

At a meeting of the Organization of the Petroleum Exporting Countries (OPEC), consisting of 13 members, led by Saudi Arabia, and its 10 partners, led by Russia, there were difficult negotiations.

Saudi Arabia’s fresh production of one million barrels per day (bpd) is earmarked for July but “with the possibility of an extension,” Saudi Energy Minister Prince Abdulaziz bin Salman told reporters after a hours-long OPEC+ meeting at the group’s headquarters in Vienna .

Analysts mostly expected OPEC+ producers to keep their current policies, but this weekend there were signs that 23 countries are mulling deeper cuts.

In April, several OPEC+ members agreed to voluntarily cut production by more than one million barrels per day, a surprise move that briefly supported prices but did not lead to a sustainable recovery.

– ‘Everyone is happy’ –

Oil producers struggle with falling prices and high market volatility amid the Russian invasion of Ukraine that has shaken economies around the world.

Oil prices have fallen by about 10 percent since the April cuts were announced, with Brent crude falling to nearly $70 a barrel, a level it has not traded below since December 2021.

Traders fear demand will fall and worry about the health of the global economy as the United States battles inflation and higher interest rates while China’s post-COVID-19 recovery slows.

Russian Deputy Prime Minister Alexander Novak said the current production cuts are being extended until the end of 2024 after a “lengthy study” of the matter.

According to the OPEC+ table with required production levels for next year, the United Arab Emirates will be able to produce more than it currently has, while several countries, including Angola, the Republic of the Congo and Nigeria, have reduced their quotas.

Bloomberg reported that African countries were reluctant to give up some of their quotas despite failing to meet them.

“We have an agreement that everyone is happy with,” Bruno Jean-Richard Itua, Minister of Hydrocarbons of the Republic of the Congo, said after the meeting.

– “No disagreement” –

Sunday’s meeting was also closely watched, analysts said, as Russia sought to maintain its production while Saudi Arabia wants to raise prices to balance its budget.

“They showed again that they are working together… At the end of the day, it’s about what they agreed on,” said UBS analyst Giovanni Staunovo, adding that “the important part was to show unity.”

Russia depends on oil revenues as its war in Ukraine drags on and Western sanctions hit its economy and it supplies oil to India and China while Asian giants gobble up cheap oil.

On the other hand, according to Commerzbank analysts, Saudi Arabia’s break-even price is currently “a good $80 a barrel”.

In March 2020, the alliance was on the brink of collapse when Moscow refused to cut oil production despite the Covid pandemic causing prices to free fall.

After the talks failed, Riyadh flooded the market, ramping up exports to record levels before the two countries came to an agreement.

Asked if there was a disagreement with Saudi Arabia this weekend, Novak said: “No, we didn’t have a disagreement, it’s a common decision.”

Analysts say oil prices are expected to rise in the short term following Riyadh’s move.

“The question mark is the demand side of oil. If prolonged inflationary pressures lead to a downward revision in global oil demand, the supply cut could be reversed,” warned Tamas Varga, analyst at PVM Energy.

OPEC+ countries produce about 60 percent of the world’s oil. The next meeting of the group is scheduled for November 26.