Saudi Arabia and Russia extended unilateral oil supply curbs for another three months, a more aggressive move than traders expected, as OPEC+ members seek to shore up a fragile global market.
The leader of the Organization of the Petroleum Exporting Countries will continue its production reduction of 1 million barrels per day until December, according to a statement published on Tuesday by the Saudi Press Agency. The move will keep output around 9 million barrels a day, the lowest level in several years, for a total of six months.
Russia’s export cut of 300,000 barrels a day will be extended for the same duration, Deputy Prime Minister Alexander Novak said in a separate statement.
“This voluntary cut decision will be reviewed monthly to consider deepening the cut or increasing production,” according to the statement published by SPA. Saudi Arabia aims to support “the stability and balance of oil markets”.
Global crude oil markets are tightening as demand climbs to record levels, and the summer rally in prices has resumed despite growing concerns about economic growth in China. The move by Riyadh and Moscow beat market expectations for an extension of just one more month, sending Brent crude, the international benchmark, down 1.54% to $90.37 a barrel at 2:38 pm in London .
The Saudis introduced their additional supply cut in July, deepening reductions already made with OPEC+ alliance partners. With most coalition members already suffering production losses due to underinvestment and operational disruptions, Riyadh chose to go largely solo to support prices.
Major consumer nations have criticized the kingdom and its partners for the intervention, just as global demand for fuel is rising to record levels and inventories are running low. A new rise in inflation would squeeze consumers and jeopardize the recovery, they warn.
Defending the market has come at a cost to the Saudis. The kingdom suffered the biggest downgrade of the International Monetary Fund’s economic growth projections because of the sales volumes it is losing. However, it appears to be an acceptable price for the kingdom, which may need oil at nearly $100 a barrel to cover the ambitious spending projects of Crown Prince Mohammed bin Salman, according to Bloomberg Economics.
“There is no indication that Saudi Arabia will move away from its current price-over-volume strategy,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “Pricing on volume is the name of the game.”
–With assistance from Fiona MacDonald and Dana Khraiche.
