Amidst a backdrop of geopolitical turbulence in the Middle East, Saudi Arabia and Russia have confirmed their commitment to oil output cuts of one million barrels per day (bpd) until the end of the year.
Saudi Arabia's Ongoing Voluntary Cut
Saudi Arabia, the largest oil exporter in OPEC, will persist with its voluntary production cut of one million bpd, which was initiated in July 2023 and extended until December, according to an official source from the kingdom's Ministry of Energy.
The kingdom is working to promote balance and stability in the oil market, and this move is part of that. It is estimated that the kingdom will produce almost 9 million barrels of oil per day by December 2023. Remember that next month, this voluntary cut will be reevaluated to see if it should be deepened, extended, or its production boosted.
Russia's Parallel Efforts
Not to be outdone, Russia intends to maintain its voluntary 300,000 bpd reduction in the amount of oil and oil product supplies it provides to international markets. Initially implemented in September and October of 2023, this cut will last until the end of December of that same year. Before determining whether to continue the oil production cuts or perhaps boost output, Russia will independently assess the state of the global energy market.
Ongoing Efforts of OPEC+
Saudi Arabia and Russia's commitment to output cuts is part of the broader efforts of OPEC+ (the alliance between OPEC and non-OPEC oil-producing nations), which has placed total production cuts at 3.66 million bpd. This figure includes a two million bpd reduction established last year and voluntary cuts of 1.66 million bpd declared in April.
Global Market Concerns
This decision comes at a time of heightened concerns in the oil market. Weak economic growth in China, the world's largest oil importer, has raised fears of a demand slump. Additionally, the Israel-Gaza conflict that erupted in October has further contributed to market volatility. The prospect of this conflict spreading to the broader Middle East region and disrupting global oil supplies has been a source of uncertainty.
Market Performance
Despite diplomatic efforts to halt the Israel-Gaza conflict, the oil market remains marked by uncertainty. Brent, the global oil benchmark, experienced a 2.26 percent decrease, closing at $84.89 a barrel. West Texas Intermediate (WTI), which tracks US crude, fell by 2.36 percent, closing at $80.51 a barrel. For the week, Brent saw a 4.8 percent decline, while WTI lost nearly 6 percent.
The oil market continues to navigate a difficult environment characterized by geopolitical risks and concerns about demand as Saudi Arabia and Russia reaffirm their commitment to output cuts.
