(Bloomberg) – Saudi Arabia will further cut oil supply by a million barrels a day in July, bringing output to the lowest level in several years after a slump in crude prices.
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The bold move by the largest member of the OPEC+ coalition came at the cost of ceding ground to two key allies: Russia, which has not pledged to further cut production, and the United Arab Emirates , which got a higher production quota for 2024. Oil prices rose on Monday.
Saudi Energy Minister Prince Abdulaziz bin Salman said he “will do whatever is necessary to bring stability to this market”. As oil prices are hammered by a weaker economic outlook, particularly in China, getting there means bearing the brunt of the cuts. The rest of the group of 23 nations offered no additional measures to strengthen the current market, but pledged to maintain their existing reductions until the end of 2024.
The kingdom is doubling down after the previous round of restrictions – agreed just two months ago – failed to deliver a sustained rise in prices. The Organization of the Petroleum Exporting Countries announced a surprise supply cut of around 1.6 million barrels per day in early April, but since then weak economic data from China has weighed on oil futures. oil, which fell 11% in New York in May.
West Texas Intermediate jumped nearly 5% early in Monday’s session before paring some gains to trade above $73 a barrel. The global Brent benchmark climbed towards $78 a barrel.
Next month’s further cut could be extended, but the Saudis will keep the market “on hold” over whether that will happen, Prince Abdulaziz said. The minister has repeatedly sought to hurt bearish oil speculators, warning them to “be careful” in preparation for Sunday’s meeting.
“In the short term, crude prices will largely depend on a test of will,” said Bob McNally, chairman of consultancy Rapidan Energy Group and a former White House official. It will be a battle “between stability-seeking Saudi Arabia and bearish paper traders.”
The Saudi effort to prop up the price of its most important export requires the sacrifice of additional market share. Global oil demand is expected to hit a record high this year, but additional cuts announced on Sunday will take Saudi production to around 9 million barrels a day in July, the lowest since June 2021, as output was still recovering from the depths. of the Covid. -19 pandemic.
The main winner of the weekend’s OPEC+ talks was the United Arab Emirates, which gets an increase in its production limit for next year at the expense of some African members, who have been asked to give up their part of their unused quotas. Energy Minister Suhail Al Mazrouei thanked his colleagues for the increase and expressed the country’s loyalty to the cartel.
“We will always support OPEC and always stick together,” Al Mazrouei said. It was an important statement from a country that on at least one previous occasion had threatened to leave the group if it did not get a higher quota.
Russia, OPEC+’s second-largest producer, was not required to make additional cuts this year, but like other members, it extended its existing 12-month restrictions until the end of 2024. Moscow has increasingly competed with its Middle Eastern OPEC allies in Asian markets since Europe banned most imports of its oil. There have also been questions about whether it has fully implemented production cuts promised in recent months due to high export volumes.
The announcement of the OPEC+ deal was delayed for several hours as ministers discussed details. The most controversial point was the revision of the reference levels against which the production cuts of several countries are measured. African nations Angola and Nigeria, which have struggled to meet production targets almost since their introduction three years ago, were the most resilient, delegates said.
Even if countries cannot fully utilize their production quotas today, they were unwilling to give them up, delegates said. Several of them are looking for new investment to boost production in the coming years and a restrictive OPEC+ production quota could hurt their appeal to foreign investors.
It was a bitter political pill for them to swallow and the talks dragged on in nightly sessions at Vienna hotels on Saturday and continued at OPEC headquarters on Sunday. Eventually, the impasse was resolved and African countries agreed to lower production limits, subject to an independent review of their production capacities.
The other controversy of the meeting was that three news agencies, Bloomberg, Reuters and the Wall Street Journal, were barred from entering OPEC headquarters in Vienna. Asked about the exclusion of journalists, Prince Abdulaziz referred the matter to OPEC Secretary General Haitham Al Ghais. He gave no explanation for the decision.
(Updates with oil prices in fifth paragraph.)
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