Saudis to slash July oil output
OPEC Plus tries to halt oil price slide
The group of major oilproducing countries known as OPEC+ agreed Sunday to embark on a complex effort to adjust production as it aimed to halt the recent slide in oil prices, including an additional cut in output of 1 million barrels a day by Saudi Arabia.
The Saudi cut would be for one month beginning in July, but it could be extended.
The group, which includes Russia and its allies, was under pressure to produce a deal to reverse the pessimism that has dominated the oil market in recent weeks. Despite two substantial output cuts since October, the price of oil has drifted about 15% lower over the past seven months.
The agreement, the result of lengthy negotiations Saturday and Sunday, reworks the output quotas of several countries, with the United Arab Emirates gaining and some others losing production levels. “This is definitely not a clean and simple deal,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm.
The agreement includes a voluntary cut of 500,000 barrels a day that Moscow announced in February.
Comments at the news conference after the meeting revealed skepticism that Russia was abiding by those lower production levels. High Russian production levels, and its increased share of Asian markets including India, often at the expense of Middle East oil producers, have become a sensitive issue in the group.
Some of the data “from Russia just does not add up,” said Suhail al-Mazrouei, the oil minister of the United Arab Emirates. He said Russian officials “are reaching out to explain the numbers.”
OPEC+, in a statement, said that it was acting “to achieve and sustain a stable oil market,” and that it was continuing its recent approach of being “proactive, and preemptive.”
As far as the markets are concerned, the key feature of the agreement is the additional production cut by Saudi Arabia, which would bring its daily output to about 9 million barrels a day. The Saudi oil minister, Prince Abdulaziz bin Salman, called the move “the Saudi lollipop” while announcing it during the news conference.
After suggesting that cuts were in the offing before the meeting, Salman wound up being the only official to agree to take an immediate hit.
MODEST WIN FOR UAE
He may have won some long-term concessions. With this agreement, OPEC+ is trying to address long-standing discrepancies that have made some of the group’s production decisions almost incomprehensible. For instance, oilproducing countries including Nigeria and Angola have for years not been able to meet their targets because of insufficient investment and other issues. They are taking hits to their quotas, starting in 2024.
At the same time, the UAE, which is investing billions to increase its capacity to produce oil, was a modest winner Sunday, gaining an increased quota of 200,000 barrels a day, beginning in 2024. The UAE has long sought to produce more oil, even staging a rare public fight with the Saudis in 2021 and suggesting it might leave OPEC.
With oil vital to the economies and governments of many of these countries, it was not surprising that the tricky issue of addressing quotas produced a meeting that ran well into the evening in Vienna.
Bronze of Energy Aspects said the agreement tried to tackle issues that had bedevilled the group. “I do think as the market digests the details, there is real substance here,” he said.
The oil officials met over the weekend to decide what to do about markets that had weakened in recent weeks. Salman had been particularly vocal about warning that the group might cut production to shore up prices and trip up traders betting on lower prices.
Other producers, including Russia, have been less enthusiastic about scaling back production.
Sunday’s meeting occurred only two months after OPEC+ announced an earlier round of cuts. Those trims began in May and have had little time to make an impact. Analysts also say that the oil markets — where prices have slipped about 12% since midApril — have been heavily influenced by broader economic factors, including China’s weaker-than-expected economic growth since the end of its “zero-Covid” policies. That could lessen the impact of supply cuts.
On Thursday and Friday, after Washington reached a deal on the debt ceiling, prices for Brent crude, the international benchmark, rose about $3 a barrel to about $76 a barrel, but prices remain slightly below their levels on the eve of the April cut.
Saudi Arabia’s announcement comes a couple of days before US Secretary of State Antony Blinken is scheduled to visit the country for talks with Saudi leaders.
PRICE SUPPORTS
Saudi Arabia is the de facto leader of OPEC+, and under Salman and his younger half brother, Crown Prince Mohammed bin Salman, the country has become more aggressive in its oil policies than in the past, preferring to make cuts in an effort to keep a floor under prices rather than letting markets take their course.
Crown Prince Mohammed, the kingdom’s main policymaker, wants high oil revenues to finance his ambitious development plans.
Although OPEC does not publish price targets and its officials say they take a long-term view, analysts say the Saudis are now uncomfortable with prices below $80 a barrel for Brent crude. With OPEC+ producing more than 40% of global oil supplies, the group can exert considerable sway over markets if it tries hard enough.
In the past, Saudi-led OPEC trims have set off friction with the Biden administration, which wants to keep oil prices down to ease pressure on US drivers and to avoid putting a brake on the weak global economy.