Saudi Arabia announced on Monday that it would extend a 1 million barrel-per-day production cut announced in June until at least August, in an effort to boost oil prices that officials see as stubbornly low. Saudi Arabia is joined by Russia, whose Deputy Prime Minister Alexander Novak said Russia would cut supplies by 500,000 barrels in August.
Together, these preparations could reach 1.5% of global supply. Oil prices edged higher on news of production cuts, with global benchmark Brent crude rising above $76 a barrel before rebounding slightly.
Uncertainty over the strength of the global economy has put oil prices under pressure in recent months as many central banks continue to raise interest rates to curb inflation. There are also questions about the long-term future of oil as electric vehicles and other alternatives to oil consumption continue to grow. Saudi Arabia and other members of a group of producers known as OPEC Plus have been phasing out production since last fall.
According to the state news agency, “This additional voluntary cutbacks are made to reinforce the preventive efforts made earlier.” saudi news agency. The latest cuts in Saudi production began earlier this month. Novak said Russia’s proposed August export cuts would come “as part of efforts to ensure oil market equilibrium”. said in a statement.
Monday’s announcement appeared to be coordinated and intended to give the impression that OPEC+ co-chair Russia remains committed to the group’s market control efforts. “The intention here is to show that this is not just Saudi Arabia acting alone,” said Richard Bronze, head of geopolitics at research firm Energy Aspects.
It’s not clear how much Russia will actually cut supplies. Russia is under pressure from Saudi Arabia and other OPEC+ members to comply with production restrictions, but Russia is reluctant to sacrifice revenues that could be used to finance the war in Ukraine. China and India are now buying most of Russia’s seaborne oil exports after international sanctions targeting Russia’s energy industry restricted sales to previous buyers such as Europe.
Saudi Oil Minister Prince Abdulaziz bin Salman appears to be trying to show the market that he will do whatever it takes to support prices. But Saudi Arabia is in a difficult position to bear the brunt of the production cuts, fueling speculation about how long OPEC+ can maintain its unity.
Saudi Arabia said it produced just 9 million barrels of oil per day, down nearly 2 million barrels per day from the third quarter of last year. Saudi Arabia has invested heavily to boost production capacity, but instead has been forced to cut output.