A key OPEC+ monitoring committee on Aug. 4 pledged to keep tightening the market by affirming the producer group's current quotas, with co-chairs Saudi Arabia and Russia having already announced extensions of their voluntary supply cuts a day earlier.
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The Joint Ministerial Monitoring Committee will also move from holding meetings once a month to once every two months, with the next meeting scheduled for Oct. 4, OPEC said in a statement.
Saudi Arabia will continue the 1 million b/d production cut that is holding its crude production at a two-year low of 9 million b/d, while Russia is tapering its 500,000 b/d export cut for August to 300,000 b/d for September.
Leading the OPEC+ alliance's aggressive defense of oil prices, Saudi Arabia said its voluntary cut may be further extended, or extended and deepened.
With the oil market outlook still clouded by significant uncertainty over macroeconomic conditions, the OPEC+ alliance has said it will remain vigilant with its production policy.
"The committee will continue to closely assess market conditions noting the willingness of the Declaration of Cooperation countries to address market developments and stand ready to take additional measures at any time, building on the strong cohesion of OPEC and participating non-OPEC oil-producing countries," OPEC said in a statement.
The OPEC+ cuts have boosted crude prices in the last month, with Platts, a part of S&P Global Commodity Insights, assessing Dated Brent at $86.86/b on Aug. 4, up 16% since July 1, but doubts over the strength of China's economy and high inflation in many major consuming countries hang over the market.
In an interview broadcast on the Russia 24 news channel after the JMMC meeting, Russian Deputy Prime Minister, and lead OPEC+ negotiator, Alexander Novak said current oil prices are acceptable.
Oil demand to outpace supply
The continued supply restraint should lead to significant stock draws in the coming months. Analysts with S&P Global Commodity Insights see global oil demand outpacing supply by 2.3 million b/d in the third quarter and 900,000 b/d in the fourth quarter.
"Saudi Arabia, Russia and others in OPEC+ need markets to perceive a scarcity that in turn would prompt competition to secure OPEC+ barrels," S&P Global analysts Bhushan Bahree and Paul Tossetti said in an Aug. 3 note.
The extra Saudi cut "likely will reinforce backwardation in oil markets as inventories continue to draw down as expected for this quarter," they said.
The Saudi and Russian measures come on top of some 1.2 million b/d in collective OPEC+ voluntary output reductions that have been in force since May. These cuts followed an earlier decision by Russia to cut 500,000 b/d after punishing sanctions on its oil exports and sales were imposed in response to its invasion of Ukraine.
OPEC said that the committee urged all participating countries to achieve full conformity and adhere to the compensation mechanism.
OPEC+ output was 3.5 million b/d under its collective quotas in June, according to data presented to the JMMC and seen by S&P Global Commodity Insights.
Not including the pandemic and the September 2019 attack on Saudi Aramco's Abqaiq crude processing facility, if Saudi Arabia meets its pledged cuts, its output would be at an output level last seen in 2011.
Russia cutting exports
Russia has taken longer than Saudi Arabia to meet its cut targets in recent months and faces economic challenges linked to its invasion of Ukraine and price discounts on its crude exports -- a key contributor to the state budget.
Novak said Aug. 4 that Russia is fully committed to the OPEC+ agreements and its oil output remains at 9.5 million b/d.
"In addition, August and September are two months during which we will supply less to export markets in order to support the situation on the market, together with our other countries, to ensure the necessary stability," he said.
Russia pumped 9.42 million b/d of crude in June, according to the latest Platts OPEC+ survey by S&P Global Commodity Insights, compared with 10.11 million b/d in February 2022, when Russia invaded Ukraine.
The JMMC meeting came ahead of Saudi-led Ukraine peace talks, aimed at ending a conflict that has had a major impact on commodities prices and trade flows.
But the war shows no signs of relenting, with a drone attack causing a temporary closure of Russia's key Black Sea port of Novorossiisk, from which crude exports, mostly from Kazakhstan, normally average 1.5 million b/d.
The next full OPEC+ ministerial meeting is scheduled for Nov. 26.