Crude @ $90 A Barrel: Saudi Arabia, Russia Tango Together With Production Cuts
Saudi Arabia and Russia announced on Tuesday that they would prolong their voluntary oil production cuts until the end of the year. This decision comes despite the recent surge in oil prices and analysts' expectations of a tight supply in the fourth quarter. Oil prices saw a significant increase in response to this news, with Brent crude surpassing USD 90 per barrel for the first time since November. This occurred despite ongoing increases in Iranian and Venezuelan oil exports, as the market perceives that the United States is not enforcing sanctions as strictly as before.
This move is a setback for US President Joe Biden, as the tighter supply has led to higher prices, and he is facing re-election in 14 months. The U.S. has argued that lower oil prices are needed to support economic growth and prevent Russian President Vladimir Putin from generating more revenue to fund the conflict in Ukraine.
In the past, Biden's attempts to secure increased oil production during a visit to Saudi Arabia were unsuccessful. Instead, allies led by Russia, collectively known as OPEC+, announced production reductions in October and further surprise cuts in April.
The US and its Western allies have been urging OPEC+ to boost output in order to lower energy costs and support the global economy. However, OPEC+ producers argue that they are acting to maintain market stability and taking a proactive approach.
OPEC+ members also believe that the abundant money-printing by Western central banks over the past decade has diminished the value of their primary export product, which constitutes a significant portion of their revenues.
These voluntary cuts by Saudi Arabia and Russia are in addition to the April cuts agreed upon by several OPEC+ producers, which will extend until the end of 2024.
Saudi Arabia will extend its voluntary reduction in oil production by 1 million barrels per day (bpd) for another three months, continuing until December 2023, according to the state news agency SPA.
Russia has extended its voluntary decision to decrease oil exports by 300,000 bpd until the end of this year, as announced by Deputy Prime Minister Alexander Novak.
Both countries have committed to reviewing these cut decisions on a monthly basis, considering the possibility of deeper cuts or increased production depending on market conditions. This joint effort by Russia and Saudi Arabia allows the Kremlin to generate more revenue amid the ongoing conflict in Ukraine, despite attempts by the European Union to limit Moscow's income by capping Russian oil prices. Currently, most Russian oil is trading above the price cap.
