Russia and Saudi Arabia extend oil export cuts to end of 2023; oil prices soar

Russia and Saudi Arabia, on Tuesday (September 5), said that they would extend the voluntary oil cuts until the end of this year. This has sent the price of Brent crude to a 10-month high, months after Saudi Arabia, the world’s biggest crude exporter, first announced the cuts as well as sparked worries among investors about potential shortages during peak winter demand.

Saudi Arabia announces oil export cuts

The announcement was made by Saudi Arabia’s energy ministry which said that they are extending the oil production cut to one million barrels per day, which first took effect in July, for “another three months until the end of December 2023.”

This comes after the oil production cuts were first announced after a June meeting of the 23-nation OPEC+ alliance, which also includes Russia. This recent announcement also comes after a statement in early August said that the cut would last through September and possibly “deepened”, but that was not the case on Tuesday.

The decision will be “reviewed monthly to consider deepening the cut or increasing production,” said the kingdom’s energy ministry. Notably, while Saudi Arabia has reported its daily capacity as 12 million bpd, currently their daily production stands at approximately nine million bpd.

What did Russia say?

Russia also said that it would extend its oil export cuts of 300,000 barrels per day until the end of 2023 to “maintain stability” on markets, as per AFP.

Deputy Prime Minister Alexander Novak announcing the extension said that they would also review the cuts monthly and take a call on whether to deepen them or whether production should be increased “depending on the global market situation.”

Announcement affects markets

Brent crude futures rose by $1.04 or 1.2 per cent and settled at $90.04 a barrel, closing above the $90 mark for the first time since November 2022, according to Reuters.

While investors had expected Russia and Saudi Arabia to extend the voluntary cuts into October, a three-month extension came as a shock.

“These bullish moves significantly tighten the global oil market and can only result in one thing: higher oil prices worldwide,” said Jorge Leon, senior vice president at Rystad Energy, as quoted by Reuters.

Last year, OPEC+ agreed to reduce output by two million barrels per day, a decision which drew criticism from the United States who accused Saudi Arabia of supporting Russia’s war in Ukraine.

UBS now reportedly expects Brent crude to rise to $95 a barrel by the end of 2023.

(With inputs from agencies)

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