Saudis increase cuts to oil output
DUBAI Saudi Arabia will voluntarily deepen oil output cuts from June as low oil prices are causing huge pain to the kingdom’s budget and global demand remains weak due to lockdowns to contain the coronavirus pandemic.
The announcement by the kingdom to add one million barrels per day — equal to one per cent of global supply — to the previously announced cuts follows last week’s discussion between U.S. President Donald Trump and Saudi Arabia’s King Salman bin Abdulaziz.
Trump had worked last month to persuade Saudi Arabia, fellow Organization of the Petroleum Exporting Countries members and Russia — known as OPEC+ — to cut oil output after crude prices’ collapse put pressure on U.S. producers.
Last Friday, the two men discussed oil and defence amid news Washington would withdraw two anti-missile batteries from Saudi Arabia that have been a defence against Iran. Washington said the withdrawal was not linked to oil.
Saudi Energy Minister Prince Abdulaziz bin Salman said the deeper oil output cuts in June are designed to expedite draining a global supply glut and rebalancing the oil market.
He said the kingdom wants to be “ahead of the curve” and he sees signs of demand picking up as countries move to ease restrictions on movements imposed over the past months to stop the coronavirus epidemic.
On Monday, a Saudi energy ministry official said new cuts would bring total Saudi production down by around 4.8 million bpd in June versus April. Output would then stand at 7.492 million bpd, the lowest in almost two decades.
“The Kingdom aims through this additional cut to encourage OPEC+ participants, as well as other producing countries, to comply with the production cuts they have committed to, and to provide additional voluntary cuts, in an effort to support the stability of global oil markets,” the Saudi official said.
Kuwait joined Saudi Arabia in announcing fresh oil production cuts of 80,000 bpd in June. The United Arab Emirates also said it would reduce another 100,000 bpd in June.
Oil prices rose on the announcement, but faded later on worries of a second wave on virus infections.
Brent crude futures lost $1.37, or 4.4 per cent, to settle at US$29.60 a barrel. U.S. West Texas Intermediate crude fell 60 cents, or 2.4 per cent, to settle at US$24.14 a barrel. Global oil demand has slumped by about 30 per cent as the pandemic has curtailed travel and economic activity.
Christyan Malek, managing director at JPMorgan, said he expected Saudi Arabia to further deepen cuts, possibly by another one to 1.5 million bpd, under pressure from Trump and its own pressures at home.
Asked whether the deeper cuts by Saudi Arabia would continue beyond June, Prince Abdulaziz declined to comment.
“If things are continuously hopefully improving, we will scale back (the cuts) as we have in the (OPEC+) agreement,” he said, adding that he would be “more than surprised” if by time OPEC+ meet next in June “the picture may not be more brighter.”