Saudi Arabia will cut oil production by 1mn barrels a day in a bid to prop up oil prices, it announced after a fractious meeting of the Opec+ group of producers in Vienna on Sunday.
The kingdom’s energy minister Prince Abdulaziz bin Salman, Opec’s de facto leader, made the move as part of a deal in which several weaker African members will have quotas reduced from next year. Russia, the world’s second-largest oil exporter, could also have its production targets lowered, though the group said this was subject to review. Meanwhile, the UAE will be able to increase its production.
Oil prices have slid in the past 10 months despite several attempts by producers to tighten supplies. The kingdom and other members announced a surprise cut in April but, after briefly rallying towards $90 a barrel, prices again reversed, falling to nearly $70 a barrel at one stage last week.
The 1mn b/d cut will initially be for July but could be extended, Prince Abdulaziz said. He described it as a “Saudi lollipop” or sweetener for the group, whose other members were spared from making additional cuts this year.
“We want to just ice the cake with what we have done,” the minister said. “We will do whatever is necessary to bring stability to this market.”
The reduction will lower Saudi Arabia’s output to 9mn b/d in July, and comes in addition to a voluntary 500,000 b/d cut announced by the kingdom in April, when its output was around 10.5mn b/d.
Giovanni Staunovo, a commodity analyst at UBS who attended the meeting, said it was a “strong statement” from Saudi Arabia because 9mn b/d was a “very low” production level for the kingdom. Its maximum output capacity is close to 12mn b/d.
“It is very low in the context that we are not in a global recession,” Staunovo said.
“It is a clear signal that they want to achieve, as they say, ‘market stability’.”
According to IMF estimates, Riyadh needs an oil price above $80 a barrel to balance its budget and fund some of the “giga-projects” that Crown Prince Mohammed bin Salman hopes can transform its economy.
The Opec+ group’s collective production targets were adjusted to 40.5mn barrels a day for 2024, formalising and extending the voluntary cuts announced in April at the group level.
The distribution of cuts was contentious, with many African members initially resisting efforts to revise down their production baselines. These are supposed to reflect their maximum output capacity and are used to calculate the size of cuts they must make.
Weaker Opec members, including Nigeria and Angola, had already been struggling to reach existing output targets after years of under-investment, and were reluctant to make deeper cuts.
But the UAE has been pushing for a higher production baseline, reflecting investments in its industry. Its production target will increase by around 200,000 b/d from January to 3.2mn b/d. Angola, Nigeria and others will have their targets reduced, though analysts say that this will only reflect what they can produce and should not remove a significant number of barrels from the market.
According to the deal, Russia could also have its production targets reduced, depending on the findings of a review of current output levels by independent specialists.
“We, as always, find common ground,” Russia’s energy minister Alexander Novak said as he left the meeting.
Opec has faced criticism for its alliance with Russia following the full-scale invasion of Ukraine last year, and for trying to prop up prices during an energy crisis triggered by Moscow’s actions.
The decline in oil prices since October may have made the White House more sanguine about further production cuts, however, according to analysts, as the US tries to mend ties with Saudi Arabia.
In a sign of the pressure on the Saudi energy minister, who is a half-brother to the kingdom’s de facto ruler Crown Prince Mohammed, several journalists, including entire teams from Reuters and Bloomberg, were blocked from attending the weekend’s meetings.
Opec secretary-general Haitham Al Ghais said they had let in other journalists from around the world but indicated the group would continue to choose which reporters it invites, saying, when pressed about the decision: “This is our house.”
