Saudi Arabia, Russia buoy oil prices with supply cuts
Sopuruchi Onwuka
Leading members of the OPEC+, Russia and Saudi Arabia, have decided to maintain unilateral production cuts till the end of the years in successful bid to keep prices of the commodity above $90 per barrel ($90/b).
The supply cuts announced by the two countries are voluntary additional support to efforts by the OPEC+ group to stabilize prices and maintain balance in the export market as the key producers grapple with shrinking market shares associated with trade sanctions of Russia and lower Chinese demand from Saudi Arabia.
Whereas Saudi Arabia pledged to keep 1.0 million barrels of oil per day (1.0 mbd) from the market, Russia which is already under trade sanction from the key western economies also announced that it would withhold 300,000 barrels per day (300kbd) from reaching the market.
According to the Saudi press agency, the country’s crude oil production would now be reviewed monthly with a target to keep it at a peak of 9.0 mbd till the end of the year.
Saudi Arabia had originally proposed the voluntary supply cut as one off intervention for July but extended it to August and September.
Vice President at Rystad Energy, Jorge Leon, reasoned that the Saudi oil cut “is a clear indication that oil prices trump volumes for the Kingdom.”
He predicted that higher oil prices would now spur Western leaders for more fiscal tightening, explore import adjustments or open diplomatic discussions to help mitigate the impact and tame inflation.
For Russia, analysts state that lower crude exports would ease the task of the country’s exporters as they are set to rely more on their shadow fleet, the utilization of which rose to 40-45% of all oil exports in July-August, avoiding G7 shipping and insurance.
Following the announcement from the two countries, oil prices grew stronger to over $90/bbl Tuesday morning as the market adjusted to new supply sentiments.
The cuts by Saudi Arabia and Russia is also predicted to upset market balance, with global liquids demand seen above supply by around 2.7 million bpd in the last quarter of the year as there is now imminent deceleration in China’s macroeconomic growth rate.
