Analysis-Within OPEC+, the Saudi ‘lollipop’ oil cut was also a surprise

By Dmitry Zhdannikov, Ahmad Ghaddar and Alex Lawler

LONDON (Reuters) – Saudi Arabia kept its plans to cut its own oil production drastically secret during a weekend of OPEC+ talks in Vienna, multiple OPEC+ sources told Reuters , some Member States only learning the reduction of the latest news. conference.

Saudi Arabia is OPEC’s top producer and the most flexible member to increase or reduce production, giving the kingdom unrivaled influence in the oil market – although the impact on oil prices since the he announcement of his plans has so far been modest.

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman has already used the power of surprise in managing oil markets, where prices are under pressure due to concerns about the weak global economy and its impact on Requirement.

Days before the OPEC+ meeting, Prince Abdulaziz said he would inflict more pain on short sellers – those betting oil prices will fall – and told them to be careful. He announced the production cut after the meeting, calling it a “Saudi sucker”.

Four OPEC+ sources, who were part of their countries’ delegations involved in the political talks, said they only heard details of the Saudi cut at the Sunday evening press conference – and that the idea of a cut was not raised during a weekend of talks over a broader deal to limit supply until 2024.

“No information on the additional cut was shared prior to the press conference,” one of the four sources said. “It was a surprise, again.”

Saudi Arabia said it would cut production in July by 10% or 1 million barrels per day (bpd) to 9 million bpd and could further extend the cuts if necessary. Meanwhile, OPEC+ agreed to extend cuts through 2024 but did not commit to further cuts in 2023.

OPEC+, which brings together the Organization of the Petroleum Exporting Countries and its Russian-led allies, pumps about 40% of the world’s crude.

In addition to the Saudi cut, OPEC+ lowered its collective production target for 2024 and the nine participating countries extended voluntary cuts from April until the end of 2024.

The UAE has been granted a higher production quota it has long demanded – an issue that has caused tension between the group and Abu Dhabi, which has increased its production capacity.

Saudi Arabia’s energy ministry and OPEC headquarters in Vienna did not respond to requests for comment.


In the days leading up to the June 4 meeting, two other OPEC+ sources said there was an idea of ​​further cuts by OPEC+ states, although this did not result in any advanced discussions in Vienna.

Saudi Arabia, other OPEC+ sources said, acknowledged it would be difficult to secure cuts from other countries such as the United Arab Emirates and Russia, which sources said in the days leading up to the meeting, were reluctant to cut production further.

“The Saudis were aware this time that they couldn’t push others,” an OPEC+ source said. “The UAE is happy with the new quota and it’s a big relief for the Saudis.”

Yet Saudi Arabia has managed to persuade other OPEC+ members who have been unable to produce at the required levels due to a lack of investment in capacity – notably Nigeria and the United States. Angola – to accept lower production targets for 2024 after lengthy meetings.

Prince Abdulaziz told Al Arabiya after the meeting that the group was tired of giving quotas to countries that were unable to produce them and that Russia needed to be transparent about its production and export levels.

OPEC+ sources said the new targets for Angola and Nigeria were even higher than the countries can reasonably pump, meaning they don’t have to make any real cuts.

Russia, whose exports remained strong despite Western sanctions, also avoided having to cut further.

It is unclear whether Saudi Arabia hinted at its possible voluntary reduction to some officials in Russia or to African producers to persuade them to agree a broader deal.

Nevertheless, all these producers stand to gain if they can maintain the same production or pump a little more, especially if the Saudi drop drives prices up.

The Saudi cut could also give the kingdom more leverage in coming months to pressure countries that don’t cut production and yet benefit from others’ cuts, an OPEC+ source said.

“To avoid free rider behavior, Saudi Arabia could threaten to put 1 million bpd back on the market within 30 days, which would drive prices down,” another OPEC+ source said. He did not specify which countries it might apply to.

So far, oil prices have risen slightly following the Saudi plan. Brent crude is trading above $77 on Thursday, down from Friday’s close just above $76.

“The Saudi cuts play second fiddle to worries about the state of the global economy,” said Stephen Brennock of oil broker PVM, although he added that the Saudi cut could widen a supply gap in oil. July.

“As a result, it will take a brave man to bet against a possible price hike.”

(Additional reporting by Rowena Edwards, Maha El Dahan and Olesya Astakhova; Editing by Simon Webb and David Evans)

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