Saudi Arabia and Russia on Tuesday said they would extend voluntary oil cuts to the end of the year, despite a rally in the oil market and analyst expectations of tight supply in the fourth quarter.
Oil prices rose sharply following the news, with Brent rising above $90 a barrel for the first time since November, despite steady increases in Iranian and Venezuelan oil exports as the market believes the United States is not enforcing sanctions as stringently as in previous years.
“The Saudis previewed such an outcome last month with their longer, deeper statement but today’s move still managed to catch many market participants by surprise. Once again proves that Prince Abdulaziz remains firmly in whatever-it-takes mode,” said RBC Capital Markets analyst Helima Croft, referring to Saudi Energy Minister Prince Abdulaziz bin Salman.
The decision is a fresh blow to U.S. President Joe Biden, with tighter supply boosting prices and as he faces re-election in 14 months.
The U.S. has argued that the world needs lower prices to support economic growth and prevent Russian President Vladimir Putin from earning more revenue to fund the Ukraine war.
Biden last year failed on a visit to Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, to secure a boost in production, with allies led by Russia, collectively known as OPEC+, instead announcing production decreases in October and further surprise cuts in April.
The U.S. and Western allies have urged OPEC+ to raise output to secure lower energy costs and help the global economy. OPEC+ producers argue they are acting to maintain market stability and being preemptive.
Abundant money-printing by Western central banks over the past decade is seen by OPEC+ members as having dampened the value of their main export product, which accounts for a large share of their revenues.
The Saudi and Russian voluntary cuts are on top of the April cut agreed by several OPEC+ producers, which extends to the end of 2024.
Saudi Arabia will extend its voluntary oil output cut of 1 million barrels per day (bpd) for another three months until the end of December 2023, state news agency SPA said on Tuesday, citing an energy ministry official.
Russia extended its voluntary decision to reduce its oil exports by 300,000 bpd to the end of this year, Deputy Prime Minister Alexander Novak said in a statement on Tuesday.
Both countries will review the cut decisions monthly to consider deepening cuts or raising output depending on market conditions, SPA and Novak said.
Russia joining Saudi Arabia in extending the voluntary curbs allows the Kremlin to collect more revenues amid its war in Ukraine and despite European Union attempts to limit Moscow’s income with a cap on Russian oil prices. Most Russian oil is trading above the price cap.