Saudi Arabia will cut oil production by 1 million barrels per day in a bid to prop up oil prices, it announced after a pessimistic meeting of the OPEC+ group of producers in Vienna on Sunday.
The kingdom’s energy minister, Prince Abdulaziz bin Salman, the de facto leader of OPEC, took the step as part of a deal under which the quotas of many of the weaker African members would be cut from next year. Russia, the world’s second-largest oil exporter, could lower its production targets, though the organization said this was subject to review. In the meantime, the UAE will be able to increase its production.
Oil prices have fallen in the past 10 months despite several attempts by producers to reduce supplies. The kingdom and other members announced a surprise cut in April, but after a brief surge towards $90 a barrel, prices have reversed again, dropping to nearly $70 a barrel at one point last week.
Oil prices jumped Monday morning. International benchmark Brent crude added 1.1 percent to trade at $76.98 a barrel, while the US equivalent West Texas Intermediate crude rose 1.3 percent to $72.66. WTI earlier jumped as much as 4.6 percent while Brent crude rose 3.4 percent.
Prince Abdulaziz said the cut of 1 million bpd would initially take place in July, but could be extended. He called it a “Saudi lollipop” or sweetening for the group, whose other members have not made additional cuts this year.
“We want to ice the cake with what we did,” said the minister. “We will do whatever is necessary to stabilize this market.”
The cut would bring Saudi Arabia’s production down to 9 million bpd in July, and comes on top of a voluntary cut of 500,000 bpd announced by the kingdom in April, when its production was around 10.5 million bpd.
It was a “strong statement” from Saudi Arabia because 9 million bpd was a “very low” production level for the kingdom, said Giovanni Stonovo, a commodities analyst at UBS who attended the meeting. Its maximum production capacity is close to 12 million barrels per day.
“It’s very low in context that we’re not in a global recession,” Stonovo said.
“It’s a clear signal that they want to achieve, as they say, market stability.”
According to estimates by the International Monetary Fund, Riyadh needs an oil price of more than $80 a barrel to balance its budget and finance some of the “mega projects” that Crown Prince Mohammed bin Salman hopes to transform its economy.
The OPEC+ group’s collective production targets have been revised to 40.5 million bpd for 2024, formalizing and extending group-wide voluntary cuts announced in April.
The distribution of the cuts was controversial, as many African members initially resisted efforts to revise their core product lines. This is meant to reflect the maximum production capacity and is used to calculate the size of the cuts that need to be made.
Weaker OPEC members, including Nigeria and Angola, were already struggling to reach current production targets after years of underinvestment, and were reluctant to make deeper cuts.
But the UAE is pushing for a higher production baseline, reflecting investments in its industry. Its production target will increase by about 200,000 bpd from January to 3.2 million bpd. Targets for Angola, Nigeria and other countries will be cut, although analysts say this will only reflect what they can produce and should not remove too many barrels from the market.
According to the agreement, production targets for Russia could also be lowered, depending on the results of a review of current production levels by independent specialists.
“We are, as always, finding common ground,” Russian Energy Minister Alexander Novak said as he left the meeting.
OPEC has faced criticism for its alliance with Russia in the aftermath of the all-out invasion of Ukraine last year, and for trying to prop up prices during an energy crisis stemming from Moscow’s actions.
The decline in oil prices since October may have made the White House more optimistic about further production cuts, however, according to analysts, as the US tries to repair relations with Saudi Arabia.
In a sign of pressure on the Saudi energy minister, who is the half-brother of the kingdom’s de facto ruler Crown Prince Mohammed, several journalists, including entire teams from Reuters and Bloomberg, were barred from weekend meetings.
OPEC Secretary-General Haitham Al-Ghais said that they have allowed entry to other journalists from around the world, but indicated that the group will continue to choose the correspondents it invites, saying, when pressed about the decision: “This is our home.”
Additional reporting by William Langley in Hong Kong