Riyadh, Saudi Arabia – In a significant move to bolster oil prices, Saudi Arabia has declared its commitment to extend a voluntary reduction in oil production by one million barrels per day (bpd) until the close of 2023. This continuation of the production cut, which initially commenced in July, marks a strategic maneuver by the Kingdom to ensure stability in the global oil market.
The announcement, made on Tuesday by the Saudi energy ministry, emphasizes the country's dedication to this initiative, which began following a June meeting of the OPEC+ alliance, comprising 23 nations, including Russia. The initial declaration in early August indicated the possibility of a deepened production cut through September, but the recent announcement maintains the cut at its current level.
The energy ministry's statement confirms that this decision will undergo monthly evaluations, providing the option to either deepen the cut or increase production, depending on market dynamics and demand.
This unilateral move by Saudi Arabia followed a surprising decision in April by several OPEC+ members to voluntarily reduce production by over one million bpd. While this briefly boosted oil prices, it failed to establish a sustainable market recovery. Last October, OPEC+ agreed to cut output by two million bpd, further demonstrating the collective efforts to stabilize oil markets.
The impact of these measures on oil prices became evident in July, during the first month of Saudi Arabia's exclusive production cut, when prices exceeded the crucial $80 per barrel threshold. Analysts often argue that this level is necessary for Riyadh to maintain fiscal balance. However, ongoing production cuts from various sources may potentially elevate this threshold.
Justin Alexander, director of the consultancy Khalij Economics, noted, "The additional cuts do appear to have boosted prices, and the supply is looking tight in Q4 despite rising output from Iran and some other countries." Nevertheless, he pointed out that this endeavor has come at a cost to Saudi Arabia, resulting in a 10% reduction in its oil supply, on top of the 10% cuts agreed upon during the October and April OPEC+ meetings.
Currently, the world's largest crude exporter produces approximately nine million bpd, significantly below its reported daily capacity of 12 million bpd. Riyadh's continued commitment to production cuts signals its determination to maintain a stable and prosperous global oil market.
