Riyadh, Saudi Arabia – The Kingdom of Saudi Arabia is prolonging its voluntary 1 million bpd crude oil production cut until the end of the year, maintaining a target of 9 million bpd for the remaining months. The extension will undergo monthly reviews. This move has heightened speculation about OPEC’s oil production strategy, particularly concerning the roles of Russia and Saudi Arabia within the organization.
On Tuesday, oil prices saw a 2% surge, reaching their highest point since November. The move raised concerns among investors about potential shortages during the peak winter demand period. Brent crude futures climbed by $2.08, approximately 2.3%, reaching $91.08 per barrel, surpassing the $91 mark for the first time since last November.
Simultaneously, U.S. West Texas Intermediate crude (WTI) October futures increased by $2.42, roughly 2.8%, reaching $87.97 per barrel, marking a 10-month peak. While investors had anticipated Saudi Arabia and Russia would prolong voluntary cuts into October, the unexpected three-month extension caught them by surprise.
Saudi Arabia must balance oil production cuts with the impact on its oil-dependent economy. Reduced production may lead to losses, but higher sale prices and global oil prices could help mitigate the damage. Aramco, a Saudi state controlled company, usually sells crude through annual contracts, which may specify minimum volumes. While both Aramco and customers can agree to waive this, customers can demand their contracted volumes, potentially depleting Saudi stocks or forcing increased production.
The Saudi Kingdom also risk of losing market share to Russia and Iran, as they produce similar-quality crude and focus on China with substantial discounts.
(Source: Julianne Geiger | Oilprice.com | Sharqi Khan | Reuters)
