Oil prices surge to a 10-month high as Saudi Arabia and Russia extend supply limits. According to the Saudi Press Agency, Saudi Arabia expanded its voluntary 1 million barrel per day crude oil production reduction until Tuesday’s end of the year.
In October, November, and December, the reduction will bring Saudi crude output close to 9 million barrels per day; the situation will be reviewed monthly.
Riyadh initially implemented the one million barrel per day reduction in July and has since extended it monthly. Until the end of 2024, several OPEC members have voluntarily reduced their crude oil production by 1.66 million daily barrels.
Fellow heavyweight oil producer Russia — which heads the contingent joining OPEC nations in the OPEC+ coalition — also pledged to reduce exports by 500,000 barrels per day in August voluntarily and 300,000 barrels per day in September. According to the Kremlin, Russian Deputy Prime Minister Alexander Novak announced on Tuesday that Russia will extend its export reduction of 300,000 barrels per day until the end of December 2023 and will review the measure monthly.
The reductions are voluntary because they deviate from OPEC+’s official policy, which binds each nonexempt member to a portion of production quotas. OPEC Secretary-General Haitham al-Ghais has stated in the past that voluntary reductions outside of OPEC+ decisions do not indicate policy disagreements among alliance members.
At 2:13 p.m. London time, or 9:13 a.m. New York time, the ICE Brent futures contract for November delivery rose $1.07 per barrel to $90.07 per barrel, while WTI futures rose $1.40 per barrel to $86.95 per barrel.
Saudi Arabia confronts a tricky balancing act between reducing oil output and protecting its crude-dependent economy. Losses incurred by reducing production — and, indirectly, marketing volumes — may be partially mitigated by increases in Riyadh’s sale prices and the underlying global oil prices.
After languishing below $75 per barrel for the majority of the first half of the year, global futures prices increased by more than $10 per barrel during the summer, fueled by security concerns in OPEC member Gabon and the threat of disruption in the Gulf of Mexico as a result of Hurricane Idalia.
As demand recovers in China, the world’s largest crude importer, the International Energy Agency, based in Paris, anticipates a tightening supply in the second half of 2023.
Several so-called megaprojects designed to diversify Saudi Arabia’s economy rely on hydrocarbon revenues to be funded. In the second quarter of this year, Riyadh’s gross domestic product grew by 1.1% annually, compared to 3.8% in the first quarter and 11.2% in the same quarter of 2022. This is a decrease from 3.8% in the first quarter and 11.2% in the same quarter of 2022.
Saudi government authority Typically, Aramco sells petroleum oil through annual contracts that specify minimum volumes to be made available to customers. Aramco and its clients can agree to waive this requirement. Still, customers can insist on receiving their contracted books, forcing Saudi Arabia to reduce its dwindling stockpiles or increase production.
Also at stake is the possibility of ceding market share to Russia and Iran, which produce crude of comparable quality to Saudi Arabia and have predominantly directed their exports to China while offering steep discounts.
Iran’s oil minister, Javad Owji, stated in Google-translated remarks cited by state news agency IRNA in the middle of August that his country produced up to 3.19 million barrels per day despite ongoing U.S. sanctions that deprived Tehran of European and most Asian buyers.