- Unexpected move comes ahead of Monday ministerial meeting
- Total OPEC+ cut pledges now stand at 3.66 million bpd
- Oil could jump $10 a barrel – analyst
It was also likely to further strain ties with the United States, which has called on Saudi Arabia and other allies to increase production as it tries to bring prices down and squeeze Russia’s finances.
The Saudi Energy Ministry said its own reduction of 500,000 barrels per day would be made in coordination with some OPEC and non-OPEC members, without naming them. The cuts are in addition to a reduction announced last October that infuriated the Biden administration.
The ministry described the move as a “precautionary measure” aimed at stabilizing the oil market. The cuts represent less than 5% of Saudi Arabia’s average production of 11.5 million barrels per day in 2022.
Iraq said it would reduce production by 211,000 barrels per day, the United Arab Emirates by 144,000, Kuwait by 128,000, Kazakhstan by 78,000, Algeria by 48,000 and Oman by 40,000. The announcements were carried by state media.
The earlier cuts — of some 2 million barrels a day — had come on the eve of U.S. midterm elections in which soaring prices were a major issue. President Joe Biden vowed at the time that there would be “consequences” and Democratic lawmakers called for freezing cooperation with the Saudis.
Both the U.S. and Saudi Arabia denied any political motives in the dispute, with each saying it was focused on maintaining a healthy market price.
Since those cuts, oil prices have actually trended down. Brent crude, a global benchmark, was trading at around $80 a barrel at the end of last week, down from around $95 a barrel in early October, when the earlier cuts were agreed.
Kristian Coates Ulrichsen, a Gulf expert at Rice University’s Baker Institute for Public Policy, said the Saudis are determined to keep oil prices high enough to fund a raft of ambitious mega-projects linked to Crown Prince Mohammed bin Salman’s Vision 2030 plan to overhaul the economy.
“This domestic interest takes precedence in Saudi decision-making over relationships with international partners and is likely to remain a point of friction in U.S.-Saudi relations for the foreseeable future, even without taking into account the Russian dimension,” he said.
Saudi Arabia’s state-run oil giant Aramco recently announced record profits of $161 billion from last year. Profits rose 46.5% when compared to the company’s 2021 results of $110 billion. Aramco said it hoped to boost production to 13 million barrels a day by 2027.
The decades-long U.S.-Saudi alliance has come under growing strain in recent years following the 2018 killing of Saudi dissident Jamal Khashoggi, a U.S.-based journalist, and Saudi Arabia’s disastrous war with the Iran-backed Houthi rebels in Yemen.
As a candidate for president, Biden had vowed to make Saudi Arabia a “pariah” over the Khashoggi killing, but as oil prices rose after his inauguration he backed off. He visited the kingdom last July in a bid to patch up relations, drawing criticism for sharing a fistbump with Crown Prince Mohammed bin Salman.
Saudi Arabia has denied siding with Russia in the Ukraine war, even as it has cultivated closer ties with both Moscow and Beijing in recent years, unnerving its longtime allies in Washington. Last week, Aramco announced billions of dollars of investment in China’s downstream petrochemicals industry.
DUBAI, April 2 (Reuters) – Saudi Arabia and other OPEC+ oil producers on Sunday announced further cuts in their production amounting to around 1.16 million barrels per day in a surprise move they said was aimed at supporting market stability.
The development comes a day before a virtual meeting of an OPEC+ ministerial panel, which includes Saudi Arabia and Russia, and which had been expected to stick to 2 million bpd of cuts already in place until the end of 2023.
Oil prices last month fell towards $70 a barrel, the lowest in 15 months, on concern that a global banking crisis would hit demand. Still, further action by OPEC+ to support the market was not expected after sources downplayed this prospect and crude recovered towards $80.
The latest reductions could lift oil prices by $10 per barrel, the head of investment firm Pickering Energy Partners said on Sunday.
Sunday’s pledges bring the total volume of cuts by the Organization of the Petroleum Exporting Countries, Russia and other allies to 3.66 million bpd according to Reuters calculations, equal to 3.7% of global demand.
“OPEC is taking pre-emptive steps in case of any possible demand reduction,” Amrita Sen, founder and director of Energy Aspects, said on Sunday.
Last October, OPEC+ had agreed to an output cut of 2 million bpd from November until the end of the year, a move that angered Washington as tighter supply boosts oil prices.
The U.S. has argued that the world needs lower prices to support economic growth and prevent Russian President Vladimir Putin from earning more revenue to fund the Ukraine war.
Sunday’s unexpected voluntary cuts start from May.
Saudi Arabia said it would cut output by 500,000 bpd while Iraq will reduce its production by 211,000 bpd, according to official statements.
The UAE said it would cut production by 144,000 bpd, Kuwait announced a cut of 128,000 bpd while Oman announced a cut of 40,000 bpd and Algeria said it would cut its output by 48,000 bpd. Kazakhstan will also cut output by 78,000 bpd.
Russia’s Deputy Prime Minister Alexander Novak also said on Sunday that Moscow would extend a voluntary cut of 500,000 bpd until the end of 2023. Moscow announced those cuts unilaterally in February following the introduction of Western price caps.
An OPEC+ source said Gabon would make a voluntary cut of 8,000 bpd and not all OPEC+ members were joining the move as some are already pumping well below agreed levels due to a lack of production capacity.
After Russia’s unilateral reductions, U.S. officials said its alliance with other OPEC members was weakening, but Sunday’s move shows the cooperation is still strong.
The Saudi energy ministry said in a statement that the kingdom’s voluntary cut was a precautionary measure aimed at supporting the stability of the oil market.
Reporting by Maha El Dahan, Ahmed Rasheed, Dmitry Zhdannikov and Adam Makary, additional reporting by Alex Lawler, Ahmad Ghaddar and Gary McWilliams, writing by Alex Lawler, Editing by Hugh Lawson and Sharon Singleton
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