by Maha El Dahan, Alex Lawler and Ahmad Ghaddar
VIENNA (Reuters) – Saudi Arabia decided on Sunday to cut oil production drastically in July, a move that comes on top of a deal reached within OPEC+ to limit crude supply until 2024 while the organization and its allies seek to raise the price of black gold.
Saudi Arabia’s energy ministry said the country’s output would fall to 9 million barrels per day (bpd) in July from around 10 million bpd in May, the biggest cut in years.
After seven hours of discussions in Vienna, the Organization of the Petroleum Exporting Countries and their allies led by Russia have also decided to continue to limit supply until 2024.
Overall production targets for OPEC+ members will be cut by an additional 1.4 million barrels per day (bpd) starting in 2024 from current targets to bring them in total to 40.46 million bpd, a specified the organization.
Many of these reductions will not be real, however, as the organization has scaled back targets for Russia, Nigeria and Angola to bring them into line with their current production levels.
The United Arab Emirates, on the other hand, was authorized to increase its production, by around 0.2 million bpd to 3.22 million bpd.
Saudi Arabia is the only OPEC+ member with sufficient spare and storage capacity to easily cut and expand production.
At Sunday’s meeting, the most influential members of OPEC and the largest producers in the Gulf, led by Riyadh, tried to persuade African countries such as Nigeria and Angola, whose production is low, to have more realistic goals, sources told Reuters.
Nigeria and Angola have long been unable to meet their production targets but have resisted setting baselines lower than the current ones because new targets could force them to make real cuts in their extractions.
On the other hand, the United Arab Emirates claimed a higher baseline, as their production capacity increased.
Russia has decided to extend until the end of December 2024 its program to reduce its oil production by 500,000 bpd, Deputy Prime Minister Alexander Novak said on Sunday.
A SIGNAL TO SPECULATORS
OPEC+, which produces about 40% of global crude, has already cut production by two million bpd, which represents 2% of global demand, under a deal decided last year. In April, the organization announced to add to these two million bpd new production cuts for a total volume of approximately 1.6 million bpd from May until the end of 2023.
According to Alexandre Novak, the OPEC+ cuts are aimed at ensuring the stability of the oil market.
Western countries accuse the organization of manipulating crude oil prices and weighing on economic activity through high energy prices.
Its officials respond that the monetary easing decided by most Western countries during the past decade has fueled inflation and forced oil-producing countries to act to preserve the value of their main export good.
Analysts say Sunday’s OPEC+ decision is a warning to people betting on lower crude prices.
“It’s a clear signal to the market that OPEC+ is willing to put and defend a price floor,” said Amrita Sen, co-founder of think tank Energy Aspects.
“The Saudis have followed through on their threats against speculators and they clearly want higher oil prices,” said Gary Ross, OPEC expert and founder of Black Gold Investors.
While the barrel of Brent was displayed on Friday at 76 dollars, Giovanni Staunovo, an analyst at UBS, said he expected a jump in prices at the opening of the session on Monday.
(Report Ahmad Ghaddar, Alex Lawler, Maha El Dahan and Julia Payne; written by Dmitry Zhdannikov; French version Claude Chendjou)
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