Saudi Arabia and Russia Agree on Oil Production Cuts

Saudi Arabia and Russia have jointly announced their decision to extend oil production cuts in response to concerns about the impact of weaker demand on oil prices. On Monday, Saudi Arabia revealed its plan to extend the 1 million barrels per day production cut, originally announced in June, at least through August. Russia, on the other hand, stated that it would reduce its supplies by 500,000 barrels in August. Together, these reductions could potentially account for 1.5 percent of global oil supplies. The news of the cuts led to a slight increase in oil prices, with Brent crude surpassing $76 per barrel before experiencing a minor decline.

The decline in oil prices in recent months has been attributed to uncertainties surrounding the global economy’s strength, as central banks implement interest rate hikes to combat inflation. Furthermore, the continuous growth of electric vehicles and alternative energy sources has raised doubts about the long-term future of oil consumption. In an effort to address these challenges, Saudi Arabia, along with other OPEC Plus members, has gradually decreased production since last autumn.

The coordinated announcement by Saudi Arabia and Russia aims to convey their commitment to managing the oil market. The additional voluntary cut from Saudi Arabia serves as reinforcement for the precautionary measures previously undertaken, according to the state-run Saudi Press Agency. Meanwhile, Russia’s proposed reduction in August exports is intended to contribute to maintaining market balance, as stated by Deputy Prime Minister Alexander Novak. However, it remains uncertain how much supply Russia will ultimately cut, as the country faces pressure from OPEC Plus members while seeking to preserve revenue for financing its involvement in the conflict in Ukraine. Additionally, the burden of cuts falls heavily on Saudi Arabia, prompting speculation about the future cohesion of OPEC Plus.

With these developments, Saudi Arabia’s oil production will decrease to 9 million barrels per day, representing a significant drop of nearly 2 million barrels per day compared to the third quarter of the previous year. Despite their efforts to expand production capabilities, the Saudis find themselves compelled to restrict output. This situation highlights the challenging position the country is facing and raises questions about the sustainability of OPEC Plus’s collective efforts to stabilize oil prices.