Saudi Arabia and Russia reaffirmed that they will stick with oil supply curbs of more than 1 million barrels a day until the end of the year, even as turmoil in the Middle East roils global markets.
The leaders of the OPEC+ coalition announced the plans in separate official statements on Sunday. Riyadh has slashed daily crude production by 1 million barrels and Moscow is curbing exports by 300,000 barrels, on top of earlier cuts made with fellow OPEC+ nations.
Saudi Arabia will review its production volumes next month and consider “extending the cut, deepening the cut, or increasing production,” according to a statement on the Saudi Press Agency.
Russia’s Deputy Prime Minister Alexander Novak echoed the Saudi comments on future production policy in a separate statement.
Oil prices have fluctuated in recent weeks on concern that the conflict between Israel and Hamas could escalate into a wider regional conflagration involving major crude producer Iran. Brent futures closed below $85 a barrel in London on Friday.
A broader conflict could prompt the Saudis and Russia to revise their planned cuts, according to the International Energy Agency, which has warned of the risks that high fuel prices pose for inflation and the global economy. Yet for the time being, the Organization of Petroleum Exporting Countries and its partners seem intent on keeping supplies on a tight leash.
The Saudis may need oil prices as high as $100, according to Bloomberg Economics, to fund expensive projects such as the futuristic city known as Neom, and the purchase of high-profile footballers and golfers for domestic sporting franchises. President Vladimir Putin, meanwhile, needs petroleum revenues to finance his war against Ukraine.
Last month, Saudi Energy Minister Prince Abdulaziz bin Salman said at the Future Investment Initiative conference in Riyadh that the kingdom’s oil-market strategy is working.
Saudi Arabia may also be motivated to stay the course by signs that physical oil markets are weakening. Fuel-making profits are sliding and high freight costs are making it harder to ship crude across different regions. Steep inventory declines widely anticipated by the industry haven’t yet materialized, Goldman Sachs Group Inc. has observed.
The Saudis may be forced to extend their 1 million barrel-a-day unilateral cut into 2024 as market conditions continue to falter, according to consultant Eurasia Group. A new supply surplus will emerge early next year as demand growth slows sharply, the IEA predicts.
The full 23-nation OPEC+ coalition will hold a ministerial meeting on Nov. 26 to review policy for 2024.