Saudi Arabia will extend its voluntary 1 million bpd crude oil production cut through the end of this year, according to the official Saudi Press Agency.
This brings Saudi Arabia’s targeted crude oil production to 9 million bpd for the remainder of the year. However, the extension will still be reviewed monthly, media reported on Tuesday afternoon.
Oil markets have been guessing how OPEC will proceed with its oil production strategy—with Russia and Saudi Arabia’s role in OPEC’s plan taking the top spot of concern. Market analysts routinely pick oil price points that would trigger additional action by Saudi Arabia.
Currently, Brent crude oil is trading at just below $90 per barrel, at $90.57 at 9:35 am ET, up $0.96 (+1.08%) on the day. Brent crude has shot up $6 per barrel over the last month.
As Saudi Arabia plans to extend the production cut and the market has a chance to digest Saudi Arabia’s announcement, further oil price moves are to be expected.
The question now is whether this move should be viewed through a bullish or bearish lens. While production cuts from Saudi Arabia could be seen as bullish in restricting global oil supplies, the bears are quick to point out that this means Saudi Arabia does not see China’s crude oil demand rising enough to warrant loosening the reins on its current production cut strategy.
Originally, Saudi Arabia had proposed the additional 1 million bpd supply cut—a voluntary supply cut–as a July-only event. Later, however, Saudi Arabia extended the production cut into August and September. The cut is not required as part of the deal reached with its OPEC and OPEC+ groups; rather it is in addition to the OPEC mandates.
In the meantime, Russian seaborne crude and product exports fell to their lowest since September 2022 as strong domestic demand in the summer kept volumes available for external markets capped.
Delivering on their promise to cut exports by 500,000 b/d in July-August, Russian flows to India decreased by 30% to 1.5 million b/d, just as Urals has been trading above the oil price cap threshold of $60 per barrel since early July.
Lower Russian crude exports will ease the task of the country’s exporters as they are set to rely more on their shadow fleet, the utilization of which rose to 40-45% of all oil exports in July-August, avoiding G7 shipping and insurance.
