Russia and Saudi Arabia says that they would extend the voluntary oil cuts until the end of this year

On Tuesday, September 5, Russia and Saudi Arabia jointly announced their decision to prolong the voluntary oil production cuts until the conclusion of this year. This move has propelled the price of Brent crude to a 10-month high, sparking concerns among investors about potential shortages during the peak winter demand period. Saudi Arabia, the world’s largest crude exporter, made the announcement through its energy ministry, stating that they would extend the one million barrels per day oil production cut, which initially went into effect in July, for an additional three months until the end of December 2023.

These oil production cuts were initially introduced following a June meeting of the 23-nation OPEC+ alliance, which includes Russia. In early August, a statement had suggested that the cuts would continue through September and potentially be “deepened,” but this was not the case in the latest announcement. The kingdom’s energy ministry stated that the decision would be “reviewed monthly to consider deepening the cut or increasing production.” It is worth noting that while Saudi Arabia has a daily capacity of 12 million barrels per day, its current daily production hovers around nine million barrels per day.

Russia, on the other hand, declared an extension of its oil export cuts of 300,000 barrels per day until the end of 2023 in a bid to “maintain stability” in the markets. Deputy Prime Minister Alexander Novak, who announced the extension, mentioned that they would also assess the cuts on a monthly basis and decide whether to deepen them or increase production “depending on the global market situation.”

Following this news, Brent crude futures surged by $1.04 or 1.2 percent, closing at $90.04 per barrel, marking the first time it surpassed the $90 threshold since November 2022, according to Reuters.

While investors had anticipated an extension of the voluntary cuts by Russia and Saudi Arabia into October, the decision to extend them for three months took many by surprise.

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

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

UBS now anticipates Brent crude to reach $95 a barrel by the end of 2023.