Oil prices rise as Saudi reduces daily supply

Saudi Press Agency/via Reuters

Oil prices increased by $1 a barrel on Monday off the back of Saudi Arabia’s decision to cut a further one million barrels per day of production in July.

The world’s biggest oil exporter revealed the cut, despite the rest of the Organization of the Petroleum Exporting Countries and their allies, including Russia – together known as Opec+ – remaining steadfast against increased joint action at its meeting in Vienna on Sunday.

Instead, Saudi Arabia vowed to continue with its voluntary cuts into 2024.

Opec+ has put in place cuts of 3.66 million bpd, amounting to 3.6 percent of global demand.

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According to a statement by the state-run Saudi Press Agency (Spa), the latest cut will start in July for a month and “can be extended”, taking the kingdom’s oil production to nine million bpd. The total voluntary cut will be 1.5 million bpd, Saudi’s biggest production cut in years.

“This is a Saudi lollipop,” Saudi energy minister Prince Abdulaziz told a news conference. “We wanted to ice the cake. We always want to add suspense. We don’t want people to try to predict what we do. This market needs stabilisation.”

Prince Abdulaziz said in May that he would inflict more pain on short-sellers and told them to watch out just days before a planned Opec+ meeting to decide on future oil policy.

Brent crude futures were at $77.21 a barrel on Monday morning – up $1.08, or 1.4 percent – at 0515 GMT after earlier hitting a session high of $78.73 a barrel.

US West Texas Intermediate crude climbed $1.07, or 1.5 percent, to $72.81 a barrel, after touching an intraday high of $75.06 a barrel.

“Saudi Arabia has a track record of delivering on material cuts,” RBC Capital’s Helima Croft said in a note.

“Hence, we would expect the full one million bpd unilateral cut to hit the market in July, nearly doubling the true physical reduction we have seen from the producer group since October.”

According to a report from Reuters, Goldman Sachs analysts said the meeting was “moderately bullish” for oil markets and could boost December 2023 Brent prices by $1 to $6 a barrel depending on how long Saudi Arabia maintains output at 9 million bpd over the next six months.

In March, Goldman Sachs Research said that oil prices could rise as high as $107 a barrel by year-end, depending on Opec’s move to emerging market conditions.

At Sunday’s meeting, the UAE was allowed to raise output targets by around 200,000 bpd to 3.22 million bpd while Russia, African and other smaller producers cut their quotas to bring them into line with their actual production levels.

Justin Alexander, director of Khalij Economics and Gulf analyst for GlobalSource Partners, said the latest Opec+ decisions were “bullish for oil prices – and frustrating for oil consumers”.

The next Opec and non-Opec ministerial meeting will be held on November 26 in Vienna.