Several countries extend oil output cuts to boost prices

Moscow, Riyadh and several other OPEC+ members on Sunday announced extensions to oil production cuts first announced last year as part of an agreement among oil producers to boost prices following economic uncertainty.

The plan to extend cuts to mid-2024 comes on top of previous cuts to both oil output and exports as some of the world’s largest energy producers drive to push up market rates.

Saudi Arabia’s energy ministry said it would cut its production by one million barrels per day (bpd) from April to June (Q2), while Russia announced 471,000 bpd of cuts in Q2.

“In order to maintain market stability, these additional cuts will be gradually restored depending on market conditions,” after the end of the second quarter, said Russia’s Deputy Prime Minister Alexander Novak.

The measures for both countries are in addition to a 500,000 bpd reduction announced in April 2023, which runs until the end of 2024.

UAE, Kuwait, Iraq and Kazakhstan followed suit, saying they would extend existing voluntarily cuts until the end of June.

The OPEC+ oil alliance of 22 nations has implemented supply cuts of more than five million barrels per day since the end of 2022.

Russia’s invasion of Ukraine in 2022 sent oil prices soaring to US$140, raising earnings across the industry.

The West has tried to target Moscow’s energy exports under sanctions imposed over the Kremlin’s offensive in Ukraine, forcing Russia to ramp up supplies to countries like China and India.

Oil prices surged last Friday in anticipation of the new extension.

The US West Texas Intermediate (WTI) passed US$80 for the first time since November while the North Sea Brent Crude Barrel hit a monthhigh US$83.55.

In 2016, the crude oil producing OPEC alliance, 13 members headed by Riyadh, formed OPEC+ with an additional 10 countries, including Moscow, to ease prices following US competition.

“The whole purpose of OPEC+ was to come up with a wider group so that there is no need for voluntary cuts,” Rystad Energy economist Jorge Leon told AFP.

“Everybody contributes and no one is going alone.”

But for almost a year now, Saudi Arabia has done without unanimity due to the lack of agreement among members.

Voluntary cuts, Leon warned, are a “clear signal that the cohesion of OPEC+ is not great”.

In a surprise move in December, Angola exited the alliance over a disagreement on a decision to cut production, backed by Riyadh.

For Leon, “more countries will need to contribute to official cuts” as part of a joint agreement or risk an increasingly faltering alliance.