Saudi Arabia and Russia Extend Voluntary Oil Cuts Despite Market Rally

Saudi Arabia and Russia have announced their decision to extend voluntary oil production cuts until the end of the year, defying expectations of a tight supply in the fourth quarter.

Oil Prices Surge as Brent Hits $90 per Barrel

This move has led to a significant increase in oil prices, with Brent exceeding $90 per barrel for the first time since November.

Despite ongoing increases in Iranian and Venezuelan oil exports, market sentiment suggests that the United States is not enforcing sanctions as rigorously as before. Analysts view this decision as a strategic move by Saudi Arabia's Energy Minister, Prince Abdulaziz bin Salman, demonstrating the commitment to stabilizing the oil market.

U.S. Sanctions Enforcement

However, this extension is seen as a setback for U.S. President Joe Biden, as tighter supply conditions contribute to rising oil prices. The U.S. has advocated for lower prices to support economic growth and restrict additional revenue for Russian President Vladimir Putin amid the Ukraine conflict. Last year, President Biden failed to secure a production increase during a visit to Saudi Arabia, leading to further production cuts.

Money-Printing by Western Central Banks

Western central banks' extensive money-printing over the past decade has reduced the value of oil exports for OPEC+ members, which rely heavily on oil revenues. Saudi Arabia and Russia's voluntary cuts come on top of the April agreement by several OPEC+ producers, extending these cuts until the end of 2024.

Extended Voluntary Cuts

Saudi Arabia will continue its voluntary 1 million barrel per day (bpd) output cut until December 2023, while Russia will extend its 300,000 bpd reduction until the end of this year. Both countries will assess the market monthly and adjust their production accordingly. This decision allows Russia to collect more revenue during the Ukraine conflict, despite EU efforts to limit Moscow's income by capping Russian oil prices.

Read also: UAE Enforces Weight Limits for Heavy Vehicles on roads from 2024

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