Saudi Arabia, Russia and key OPEC+ allies said April 2 that they plan to make more than 1.6 million b/d of voluntary supply cuts in total, with the bulk of these reductions starting in May and lasting until the end of the year.
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In separate statements, Saudi Arabia and Russia both said they would cut 500,000 b/d of output. Riyadh's cuts are in addition to its existing quota pledge. However, Moscow said it would extend its current cuts, due to expire at the end of June, until the end of 2023.
The kingdom said the surprise move was a "precautionary measure aimed at supporting the stability of the oil market."
Russia's top energy official echoed that message.
"Today, the global oil market is experiencing a period of high volatility and unpredictability due to the ongoing banking crisis in the US and Europe, global economic uncertainty and unpredictable and short-sighted energy policy decisions," Russia's Deputy Prime Minister and top OPEC+ negotiator Alexander Novak said in a statement.
The UAE, Kuwait, Iraq, Algeria, Kazakhstan and Oman joined Saudi Arabia's announcement of new cuts, with total reductions for the seven producers excluding Russia amounting to around 1,149,000 b/d of output over the same period. With the addition of Gabon, which also on April 2 pledged 8,000 b/d of cuts, and Russia, the total reductions amount to approximately 1,657,000 b/d.
The surprise move comes after oil prices were hit in late March from fears of a new banking crisis hitting global economic growth and demand. Platts -- part of S&P Global Commodities Insights -- assessed Dated Brent crude at its lowest for the year on March 20 at $71.705/b, just days after the collapse of Silicon Valley Bank in the US spooked world markets.
The UAE -- the third-largest Middle East producer in OPEC+ -- has pledged to cut 144,000 b/d in addition to its existing commitments to OPEC+. Kuwait said it would cut 128,000 b/d. Oman committed to 40,000 b/d and Algeria output cuts of 48,000 b/d from May until year-end. Kazakhstan separately committed to cut 78,000 b/d over the same period.
The OPEC+ monitoring committee, co-chaired by Saudi Arabia and Russia, is due to meet April 3 online to review market conditions. The nine-country committee is empowered to recommend changes to the wider OPEC+ membership, which has its next full meeting in June. All members that announced voluntary cuts on April 2 are members of the monitoring committee, except Oman, which formerly served on it until 2020.
S&P Global forecasts world oil demand to grow by 2.3 million b/d in 2023, driven by China, despite concerns over feared slowdowns in the US and European economies.
Under the current OPEC+ agreement prior to the cuts announced April 2, the 19 countries with quotas were expected to hold output to 40.103 million b/d, some 3.629 million b/d below pre-pandemic levels. Iran, Libya, Venezuela and Mexico are exempt from quotas.
In reality, OPEC+ production has been significantly below its targets, due to the sanctions on Russia, as well as technical issues and underinvestment by many members. In February, the countries with quotas pumped a combined 1.913 million b/d below their caps, according to Platts survey of OPEC+ output by S&P Global Commodity Insights.
|Saudi Arabia||500,000 b/d|
|Russia||500,000 b/d (extension of existing cut)|