Saudi Arabia and its oil-producing allies will review global oil markets this week while the kingdom weighs whether to prolong its own unilateral production cut.
Key members of the OPEC+ coalition led by Riyadh, which convene every two months to assess market conditions, are scheduled to hold the online monitoring meeting at 2 p.m. Vienna time on Friday. Yet for world markets, the most important development is whether the Saudis choose to extend a 1 million barrel-a-day cutback by another month into September.
Traders widely expect the measure will be prolonged as crude prices remain fragile despite signs that global markets are starting to tighten. Lackluster economic indicators from China, the biggest oil importer, and fears of recession in US are weighing on the outlook. The kingdom has previously announced its plans via statements on state media.
“Given how finely balanced crude oil markets remain, Saudi Arabia is expected to stay its hand and leave its output levels unaltered into September,” said Raad Alkadiri, managing director at consultant Eurasia Group.
Brent crude futures climbed to a three-month high above $85 a barrel earlier this week, although they have since eased back. Even these price levels may be too low for Saudi Arabia, which needs $100 a barrel to cover government spending, according to Bloomberg Economics.
“Having overseen a price recovery and a shift in market sentiment, Riyadh will not want to rock the ship by restoring 1 million barrels a day of supply that markets are now expecting to remain shut in,” Alkadiri said.
The Saudis launched the solo effort last month after its counterparts in the Organization of Petroleum Exporting Countries had already cut output by as much as they could. Many members like Nigeria and Angola have suffered severe supply losses from insufficient investment and operational disruptions.
Riyadh is however being aided by Russia, a member of a wider alliance known as OPEC+. Moscow had largely fallen short of promises to reduce output for several months as it maximized revenues to fund the war against Ukraine. However, tanker-tracking and refining data suggest the country now fulfilling its pledge.
–With assistance from Nayla Razzouk.
