With oil prices stuck, Saudi Arabia and Russia announce plans to cut oil production

With oil prices stuck, Saudi Arabia and Russia announce plans to cut oil production
by Daniel J. Graeber
Washington DC (UPI) Jul 3, 2023

Saudi Arabia and Russia on Monday announced separate plans to trim their crude oil production even further, ahead of a meeting of the core members of OPEC later this week.

Parties to OPEC+, the core members of the Organization of the Petroleum Exporting Countries and non-member state allies such as Russia, stood pat on production targets last month. Tacitly in pursuit of higher prices, however, Saudi Arabia opted to go it alone with a pledged cut of 1 million barrels per day starting July 1.

The Ministry of Energy, citing "an official source," said Monday it would extend that cut for another month.

"The source confirmed that this additional voluntary cut comes to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets," the ministry added.

Elsewhere, Russian Deputy Prime Minister Alexander Novak said Moscow would pledge to cut its own production by 500,000 bpd come August.

Both countries, among the largest oil producers in the world, have taken something of a go-it-alone strategy for much of the year. Saudi Arabia may need a higher price to balance its books, while Russia is looking for revenue as sanctions target its energy sector.

Cuts so far have failed to spark any sort of meaningful rally in crude oil prices, which have been stuck -- or range-bound, in industry parlance -- for more than a month. While a major surge in pre-market trading had fizzled out, the price for Brent crude oil was up about 0.6% as of noon EDT to trade at $75.85 per barrel.

OPEC+ opted to cut production by around 1.6 million bpd in May, which led Norwegian consultancy Rystad Energy to forecast a Brent crude oil price at $100 per barrel. Brent, however, last touched $100 in late August 2022 and has been stuck in the mid-$70 range ever since late April.

Production cuts from the likes of Saudi Arabia and Russia, however, may be something of a shot across the U.S. bow given that oil prices drive the bulk of what consumers see at the pump, a price point that can be a concern for the voting public.

Elsewhere, higher energy prices are a leading contributor to inflation, but there the data are mixed. Headline inflation to May was at 4% annually, down from 9.1% in June. Yet so-called core inflation, which strips out volatile food and energy prices, came in at 5.3% to May.

Meanwhile, most market analysts expect the balance between supply and demand will tighten up in the second half of the year and potentially lift crude oil prices higher.

The core members of OPEC meet later this week to discuss collective production policies in Vienna.