Saudi Arabia has unveiled an aggressive oil strategy by announcing an additional one million barrels per day (b/d) cut in its crude production. Energy Minister Prince Abdulaziz bin Salman made the announcement on June 4 as part of a deal with OPEC+ counterparts during a weekend of high-stakes oil diplomacy in Vienna. The move, according to the Prince, reflects the kingdom’s determination to counter negative trade sentiments and tighten the global oil market.
As part of the agreement, other OPEC+ members have agreed to maintain their current supply curbs until the end of 2024. This decision results in a deepening of the alliance’s total quota cuts for July to 4.7 million b/d, equivalent to approximately 5% of global oil capacity.
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Prince Abdulaziz, speaking at a press briefing, referred to the decision as a precautionary measure and emphasized the use of fundamentals to hedge against market uncertainties. “We are hedging. We are using the fundamentals to hedge. We will continue to hedge as long as we do not see clarity and stability [in the market],” he explained.
According to analysts at S&P Global Commodity Insights and OPEC’s latest monthly oil market report, the market is expected to witness significant growth in global oil consumption in the coming months. Both reports project a 2.3 million b/d increase in demand. However, Prince Abdulaziz emphasized the need for caution and stability in the market, warranting the additional production cut.
The agreement also entails a complex realignment of the alliance’s 2024 production baselines, which will be used to calculate quotas. The reallocation aims to favour the United Arab Emirates (UAE) by allowing the country to increase its production capacity by 200,000 b/d in 2024 compared to 2023. This adjustment addresses the UAE’s long-standing grievances regarding the limitation of its production capacity.
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The OPEC+ coalition, consisting of 23 countries, is currently operating with production quotas that are two million b/d lower than October levels. In April, several members, including Saudi Arabia, Russia, Iraq, the UAE, and Kuwait, committed to voluntary additional cuts totaling around 1.7 million b/d. These additional cuts will remain in effect until the end of 2024.
Prince Abdulaziz hinted at the possibility of extending the extra one million b/d production cut by Saudi Arabia beyond July but refrained from providing a specific timeline. “We will do whatever is necessary to bring stability to this market,” he stated. “We are there to do as things progress and more certainty comes out.”
The decision to implement deeper production cuts followed two days of intense negotiations in Vienna, marking the first in-person meeting of the group since October. The ministers carefully balanced the competing interests of securing market share and addressing the fiscal pressures faced by member countries due to declining oil prices. OPEC+ officials expressed frustration with the prevailing negative market sentiment, which they believe does not accurately reflect the underlying market fundamentals.
