Saudi Arabia prolonged its unilateral oil production cut by another three months as the kingdom seeks to support a fragile global market. Russia joined with an extension to its own export curbs.
The leader of the Organization of Petroleum Exporting Countries will continue the cutback of 1 million barrels a day until December, according to a statement published by the state Saudi Press Agency. The move will hold output at about 9 million barrels a day, the lowest level in several years. Russia’s export reduction of 300,000 barrels a day was extended to the same duration.
Global crude markets are tightening as demand climbs toward record levels, and summer’s price rally has resumed despite mounting concern over economic growth in China. Brent crude, the international benchmark, jumped 1.4% to $90.25 a barrel as of 2:08 p.m. in London.
The Saudis’ move exceeded market expectations. Twenty of 25 traders and analysts surveyed by Bloomberg last week had predicted the additional cutback would be continued for one additional month.
The Saudis introduced their additional supply curb in July, adding to reductions already made with partners in the OPEC+ alliance. With most members of the coalition already suffering output losses due to underinvestment and operational disruptions, Riyadh opted to make a largely solo initiative to support prices.
Major consuming nations have criticized the kingdom and its partners for the intervention, just as global fuel demand is climbing toward record levels and inventories are depleting. A renewed inflationary spike would squeeze consumers and endanger the recovery, they warn.
As Washington seeks to stave off the threat of $4-a-gallon gasoline, US officials acknowledge they’ve gradually relaxed some oil-related sanctions on Iran, allowing the OPEC member to add more barrels to the market. As a result, Iranian shipments to China are heading to the highest in a decade.
Defending the market has come at a cost for the Saudis. The kingdom suffered the sharpest downgrade to economic growth projections by the International Monetary Fund because of the sales volumes it is losing. Yet this appears to be an acceptable price for the kingdom, which may need an oil price of almost $100 a barrel to cover the ambitious spending projects of Crown Prince Mohammed bin Salman, according to Bloomberg Economics.
“There is no sign that Saudi Arabia will shift away from its current price-over-volume strategy,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “Price over volume is the name of the game.”
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