Saudi Arabia and Russia, alongside several other key OPEC+ (Organization for the Petroleum Exporting Countries and its allies, steered by Riyadh and Moscow) producers, will extend their voluntary oil supply cut until the end of Q2 2024. the de facto leader of the OPEC Saudi Arabia, said Sunday that it would extend cuts in oil production through June, noting that it was acting “in coordination with some” other states.
Saudi allies including Kuwait and the United Arab Emirates on Sunday said that they would also continue their reductions.
OPEC oil production cut
As per a source, Saudi Arabia will stretch out its voluntary oil production cut of 1 million barrels per day until the end of Q2. Riyadh’s crude production will be approximately 9 million barrels per day until the end of June, the announcement said.
Russia will trim its oil production and export supplies by a combined 471,000 barrels per day until the end of June, as per Russian Deputy Prime Minister Alexander Novak. Moscow had volunteered to reduce its supplies by a slightly higher 500,000 barrels per day in the first quarter.
OPEC key producers Iraq and UAE will also prolong their voluntary oil production cuts of 220,000 barrels per day and 163,000 barrels per day, respectively, until the end of Q2, according to Google-translated updates from their state-owned news agencies INA and WAM.
Previous oil production cut
Back in November, OPEC+ countries had held a formal policy of collectively reducing their output by 2 million barrels per day until the end of 2024. Separate from the group’s official strategy, several OPEC+ producers, including heavyweights Saudi Arabia and Russia, announced they would voluntarily trim their supplies by a total of 2.2 million barrels per day until the end of this year’s first quarter.
Why OPEC oil cut?
The decision to keep output cuts in place was expected and appears intended to bolster what might otherwise be weak oil prices. Some analysts forecast that the supply of oil will exceed demand in the first half of this year. Without continued cuts, prices might sink.
Saudi Arabia described the move as “precautionary.” Holding back oil production has “the aim of supporting the stability and balance of oil markets,” the kingdom said in a statement carried by the official Saudi Press Agency.
The latest production cut announcement comes against a background of a languishing oil price that has largely stayed in a narrow $75 to $85 per barrel interval since the start of the year, despite OPEC+ supply cuts, persistent Houthi maritime attacks in the crucial Red Sea route and ongoing spill-over risk from Israel’s war. Offsetting some of this price support in the short term is lower demand amid imminent seasonal refinery maintenance in the world’s top crude importer, China, which typically exacerbates in the second quarter.
Does not need approval from all OPEC+ members
Unlike formal policy changes, voluntary cuts do not require the group’s unanimous consent during an official meeting and bypass the need to distribute production cuts or increases among OPEC+ members. Typically, extracurricular output adjustments are not disputed by OPEC+ countries, as long as they align with the spirit of existing policy currently, the supplementary cuts build on existing OPEC+ trims.
The group’s next policy negotiations take place in June, by which point independent, third-party data providers will have finalized their assessments of group members’ production capacity baselines the levels to which each country’s quota is assigned. Heavily coveted, a higher baseline leads to a higher output limit, allowing producers to cash in on firmer revenues in a lofty price environment.
Aramco suspending oil production
In a shock move, OPEC kingpin Saudi-controlled oil giant Aramco in late January announced it was suspending its long-standing plans to increase its crude production capacity from 12 million barrels per day to 13 million barrels per day by 2027, with Saudi Energy Minister Prince Abdulaziz bin Salman later pinning the decision on the green transition.
