Energy

Saudi Arabia extends oil cuts to end of year

November 6, 2023

An oil rig in the Yarakta Oil Field in Russia. Moscow have also agreed to extend cuts through December

Prices down to $85 per barrel
Cuts began in April
Kingdom expects GDP to slow

Saudi Arabia said on Sunday it will continue its additional voluntary oil output cuts to the end of the year as part of an Opec+ policy of acting to stabilise and balance the markets.

The production cuts, which began in April, come as prices cool after hitting a 2023 high in September of nearly $98 a barrel for Brent crude.

It was trading at around $85 a barrel last week, despite weeks of conflict in Gaza that have raised fears of a regional war.

Saudi Arabia wants to keep prices high in order to fund its massive Vision 2030 development programme and giga-projects that have been valued at $1.25 trillion.

Both Saudi Arabia and Russia, which also released a statement extending cuts through December, said they would review the decision next month to consider “extending the cut, deepening the cut, or increasing production”.

The two countries first pushed through the output cut strategy within Opec+ in light of China’s slow emergence from the Covid-19 pandemic last year, which was likely to put a damper on prices.

Saudi Arabia resisted pressure from the Biden administration not to go ahead with the policy, amid accusations of supporting Russia’s invasion of Ukraine.

The cuts to around 9 million barrels per day have caused a significant slowdown in Saudi Arabia’s economic growth. The government expects GDP to slow sharply in 2023 to 0.03 percent, from 8.7 percent in 2022, with a budget deficit of 2 percent of GDP.

Analysts said they expected Riyadh to extend the cuts further. “We think the Saudis are likely to extend the voluntary production cuts into early 2024 to prevent oil prices from weakening further,” said Richard Bronze, geopolitical head at Energy Aspects.

Bill Farren-Price, a senior research fellow at the Oxford Institute for Energy Studies, said the market had already priced in the output cuts but needed more indication of Saudi intent.

The Gaza crisis will only support prices if it widens into a regional conflict involving Iran or another major oil producer. “It has more of an impact on sentiment than market fundamentals,” he said.

Saudi Arabia began voluntary cuts in July in addition to a broad supply-limiting deal first agreed by some members of Opec+ in April and a June decision by Opec+ to extend cuts throughout 2024.

In September Riyadh said it would extend its additional voluntary cut until the end of the year, but review the decision monthly.

The next Opec+ meeting is due on November 26 in Vienna.