The major exporters announced production cuts amid concerns about weaker demand’s effects on prices.
Saudia Arabia on Monday said it would extend a cut in oil production of 1 million barrels a day that it announced in June through at least August, trying to push up what officials say are weak oil prices, according to the New York Times.
“This additional voluntary cut comes to reinforce the precautionary efforts” previously made, according to the state-run Saudi Press Agency.
In Russia, deputy prime minister, Alexander Novak, said that Moscow would cut supplies by 500,000 barrels in August. Russia’s proposed reduction in exports in August would come “as part of the effort to ensure the oil market remains balanced,” Mr. Novak said in a statement.
Reuters is reporting that the cuts amount to 1.5% of global supply and bring the total pledged by OPEC+ to 5.16 million bpd. OPEC+ already has in place cuts of 3.66 million bpd, amounting to 3.6% of global demand, including 2 million bpd agreed last year and voluntary cuts of 1.66 million bpd agreed in April and extended to December 2024.
Oil prices rose modestly on news of the cuts this morning, but it wasn’t enough to prompt a “material rally,” wrote analysts at Sevens Report Research. Analysts had actually expected an extension on the cuts – considering crude’s continued weakness.
Brent was up 89 cents to $76.30 a barrel by 0950 GMT. U.S. markets will be closed Tuesday for the Independence Day holiday.
In recent months, the global economy has held oil prices in check as many central banks continued to raise interest rates to stem inflation. Added to this is the doubts over oil’s longer-term future as electric vehicles and other alternatives to consuming oil continue to grow.
According to Saudi Arabia’s announcement, the kingdom’s oil production will now be just 9 million barrels a day — a drop of close to 2 million barrels a day compared with the third quarter of last year. The Saudis are investing heavily to increase their production capabilities but instead are being forced to throttle back.
Even so, it remains to be seen if Russia will actually cut production. Russia has been under pressure from the Saudis and other members of OPEC Plus to go along with output restrictions, but Moscow has been reluctant to sacrifice revenue that could be used to help finance the war in Ukraine.
