Saudis, Russia Extend Voluntary Cuts to Year's End

Opec-plus heavyweights Saudi Arabia and Russia said on Tuesday they will extend their additional voluntary cuts in crude oil supply until the end of the year, a move that pushed Brent crude futures above $90 per barrel.

The announcements, which matched Energy Intelligence's expectations, mean that Saudi Arabia will extend an additional cut of 1 million barrels per day, while Russia will extend a cut in exports of 300,000 b/d.

A source at the Saudi energy ministry said the kingdom's production for the months of October, November and December will be around 9 million b/d, according to a report by the Saudi news agency SPA.

The additional voluntary cuts come on top of Opec-plus cuts of more than 3.6 million b/d implemented in November of 2022 and May of 2023.

Russia's Deputy Prime Minister Alexander Novak said the extensions announced Tuesday were intended to reinforce the "precautionary measures taken by Opec-plus countries to maintain stability and balance of oil markets."

Novak had hinted last week that the two largest Opec-plus producers were working on a joint move of this kind.

Both countries said they would review output on a monthly basis and that this could result in further upward or downward adjustments.

The move will be unpopular in the US and other consumer countries, where there were already concerns that the recent rise in oil prices will weigh on the global economy and hamper efforts to fight inflation.

Russian Exports

After announcing a reduction of 500,000 b/d in its output earlier this year, Russia switched that to a reduction in its crude exports in August, which was set to continue at the lower rate of 300,000 b/d in September.

Russia's crude exports did fall quite sharply in June and July of this year, but sources close to official Russian data said August exports to non-FSU countries averaged 4.37 million b/d in August, up about 100.000 b/d from July.

Nevertheless, Energy Intelligence estimates that Russia's August exports (excluding shipments to neighboring Belarus) were down by about 340,000 b/d compared with the average for the first seven months of this year.

That appears to reflect a decision in Moscow to focus more on securing higher prices for Russian crude than striving to maintain volumes in the face of Western sanctions, including an EU ban on most imports of Russian oil.

Energy Intelligence expects that the extension of the Saudis' additional voluntary cut in particular will help drive an average reduction in global inventories of 900,000 b/d in the second half of this year. 

It's still unclear when and how Opec-plus will start to unwind its supply cuts, but the much larger Opec-plus production cuts implemented in 2020 in response to the Covid-19 pandemic took more than two years to unwind.

However, just two months later, in November 2022, the alliance launched new cuts, citing concerns about an economic slowdown.

"History suggests that the producer group is not in a rush to boost production," Goldman Sachs said in a market commentary published Monday.