The amount of oil available on the world market is unlikely to increase for the rest of this year following a decision by Saudi Arabia to continue cutting production coupled with an announcement by Russia that it would keep reducing its oil exports.
Saudi Arabia's Energy Ministry announced on Tuesday that it would continue to slash its oil production by one million barrels per day (bpd) for “another three months,” from October to December 2023, maintaining its strategy to support crude prices.
At the same time, Russia announced that it would continue to cut its oil exports by 300,000 barrels per day until the end of 2023.
Saudi reduction lowers production to 9 million bpd
The cuts by Saudi Arabia, the world’s biggest crude exporter, were announced in June at the end of an OPEC+ meeting and took effect for the first time in July.
OPEC+ brings together the members of the Organisation of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and allied states including Russia.
“The kingdom’s production for October, November and December will be around nine million bpd,” the ministry said in a statement. It added that this strategy would be “reviewed on a monthly basis with a view to further reducing or increasing production.”
The policy is intended to support the stability and balance of the oil markets, it added.
New production level is way below official daily capacity
Saudi Arabia’s unilateral production cut followed an April decision by several OPEC+ members to reduce production by more than one million bpd. This briefly supported prices but did not lead to a sustained recovery.
Oil prices firmed up in July, the first month in which the Saudi reduction came into effect, crossing the $80 a barrel threshold, the level the kingdom needs to balance its budget, according to analysts.
The world’s leading crude-oil exporter has an official production capacity of 12 million bpd.
Following Saudi Arabia’s announcement, Russian Deputy Prime Minister Novak said Russia would extend the voluntary reduction in oil deliveries to world markets by 300,000 bpd until the end of December 2023. This decision aims to reinforce the precautionary measures taken by the OPEC+ countries to maintain the stability and balance of the oil markets, Mr Novak said in his press release.
Russia cuts exports but maintains current production levels
Measures of this type are mainly designed to reduce the supply of oil on the markets in order to boost prices, a way for Moscow to try to increase its revenue from the sale of hydrocarbons, at a time when the ruble has weakened considerably against the dollar and the euro.
Russia had already announced in February 2023 that it would cut its crude oil production by 500,000 bpd. On Tuesday, it repeated that it intended to maintain the measure “until the end of December 2024.”
The decision announced on Tuesday by Moscow concerns exports but not production.
