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OPEC+ opts to maintain 2023 production target, while Saudi Arabia announces additional 1mn b/d cut for July
7/6/2023
The OPEC+ group of oil exporting countries has decided not to implement additional official production cuts this year, choosing instead to set a new and lower target production for 2024. Meanwhile, Saudi Arabia announced an additional cut of 1mn b/d in July, that could be extended, to help shore up oil prices after crude oil dropped 16% in the past seven weeks to an 18-month low.
After lengthy discussions among member countries this past weekend, the OPEC+ group announced on 4 June that no additional official production cuts will be implemented this year.
It was also announced that all nine countries that implemented production cuts in April of 1.66mn b/d (Saudi Arabia, Iraq, United Arab Emirates, Kuwait, Oman, Algeria, Kazakhstan, Gabon and Russia) had agreed to extend the reductions by a year, until the end of 2024, in a move that will add limited short-term upside price pressure in the coming weeks, according to Rystad Energy.
The new target production for 2024 is 38.7mn b/d, which is 1.4mn b/d lower than this year’s target. The new target includes a significant reduction for Russia (650,000 b/d), Nigeria (360,000 b/d) and Angola (175,000 b/d), among others, and a 200,000 b/d increase in the UAE’s target production.
At the same time, Saudi Arabia also announced a voluntary cut of 1mn b/d (on top of the 500,000 b/d voluntary cut announced in April, running from May until December 2023).
‘The long-term price development will hinge on macroeconomic sentiment and the possible extension of the voluntary Saudi Arabian production cut beyond July,’ commented the market analyst’s Senior Vice President Jorge Leon, shortly after the announcement. ‘The pure possibility of the Saudi production cut extending beyond July will limit downside price pressure for the rest of 2023.’ He added: ‘This new voluntary cut is planned for July only, but Saudi Arabia was very clear in saying that these cuts could be extended. Saudi crude production in July would drop to just below 9mn b/d, its lowest level since June 2021.’
Meanwhile, Jim Burkhard, Vice President and Head of Research for Oil Markets, Energy and Mobility, S&P Global Commodity Insights, commented: ‘The latest Saudi cut is unilateral whereas the one announced before this in April was in coordination with several countries. Before that, in 2021, Saudi Arabia did cut on a unilateral basis as it has done on occasion in the past. The oil market faces headwinds from an uneven re-opening of China’s economy; US banking problems; high interest rates; and strong oil production growth outside of OPEC+, including from the US, Canada, Brazil, Norway and Guyana. In terms of world oil demand and supply fundamentals, the cut will likely expand a previously expected supply deficit in the third quarter of this year. Prices have been weak lately and the impact of this cut remains to be seen.’
The markets reacted with a knee jerk rise in oil prices shortly after the OPEC+ announcement, with Brent crude settling at around $77/b the following Monday 5 June, up from $73/b a few days earlier.
