Saudi Arabia has decided to implement another significant reduction in its oil production in July, in addition to what was approved on Sunday as part of a broader agreement among OPEC+ to cut production through 2024, as the bloc seeks to support declining oil prices. Saudi Energy Minister Prince Abdulaziz bin Salman stated that the additional cut will bring the kingdom's production down to nine million barrels per day in July, compared to ten million barrels per day in May, marking the largest production reduction in years.
The Saudi minister noted in a press conference that OPEC+ always aims to add an element of surprise, as it does not want people trying to predict its moves, emphasizing that the oil market needs stability. OPEC+ countries produce about 40% of global crude, meaning their production policy decisions can significantly impact oil prices. The group includes the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia.
A surprising announcement of a production cut in April led to a price increase of about nine dollars per barrel, raising prices above 87 dollars, but they quickly fell due to concerns about global economic growth and demand. As of Friday, the price of Brent crude settled at 76 dollars.
Saudi Arabia is the only OPEC+ member with sufficient spare capacity to easily reduce or increase production. The kingdom swiftly managed the supply surplus that weakened the market in the early stages of the COVID-19 pandemic in 2020 when the group implemented record production cuts.
### Extension Until the End of 2024
OPEC+ has enacted reductions of 3.66 million barrels per day, equivalent to 3.6% of global demand, including two million barrels per day agreed upon last year and a voluntary cut of 1.66 million barrels per day in April. These cuts were set to last until the end of 2023. On Sunday, OPEC+ announced it would extend these cuts until the end of 2024 as part of a broader agreement on production policy reached after seven hours of talks.
Since the start of the Russian invasion of Ukraine in February last year, Western countries have accused OPEC of manipulating oil prices and undermining the global economy through high energy costs. The West also accuses OPEC of siding with Russia. In response, sources within OPEC say that the West's money printing over the past decade has led to inflation and forced oil-producing countries to work to maintain the value of their key exports.
Analysts stated that OPEC+'s decision on Sunday sent a clear signal that the group is ready to support prices and confront speculators. Amrita Sen, co-founder of Energy Aspects research center, remarked, "It’s a clear signal to the market that OPEC+ is willing to set a price floor and defend it." Longtime OPEC observer and founder of Black Gold Investors, Gary Ross, noted that the Saudis "carried out their threats against speculators, and it's clear they want higher oil prices."
While the market was closed on Sunday, UBS analyst Giovanni Staunovo anticipated a strong start when it reopens on Monday. In addition to extending the current OPEC+ cuts of 3.66 million barrels per day, the group also agreed on a further reduction of the total production target starting January 2024 by 1.4 million barrels per day compared to current targets, bringing it to 40.46 million barrels per day. However, a large part of these cuts will not be real, as the alliance lowered targets for Russia, Nigeria, and Angola to align with current actual production levels. In contrast, the United Arab Emirates has been allowed to increase its production targets by about 0.2 million barrels per day to 3.22 million barrels per day.
