Opec+ members Saudi Arabia, the UAE, Iraq, Kuwait, Oman and Algeria will extend their voluntary oil production cuts until the end of 2024 as economic growth concerns weigh on the outlook for crude demand.
Saudi Arabia, the world's largest crude exporter, will make an additional voluntary output cut of 1 million barrels per day in July, which could be extended if required, the kingdom's energy minister said during a press conference after Sunday's Opec+ meeting.
“We continue to set the example of how much one needs to be transparent in order to achieve the most … dominant and more important priorities, which is seeking stability and sustainability,” Prince Abdulaziz bin Salman said.
The UAE, Opec's third-largest producer, will have its voluntary cut of 144,000 bpd in place until the end of December 2024.
This is “a precautionary measure, in coordination with the countries participating in the Opec+ agreement, which had previously announced voluntary cuts in April”, Suhail Al Mazrouei, the UAE's Minister of Energy and Infrastructure, said on Twitter.
“This voluntary cut will be from the required production level,” Mr Al Mazrouei said.
Russia will also extend its voluntary output cut of 500,000 bpd until the end of next year.
In a separate statement on Sunday, the Opec+ alliance of 23 oil-producing countries said it set a new production target of 40.46 million barrels per day for next year.
The decision was taken “in light of the continued commitment … to achieve and sustain a stable oil market, and to provide long-term guidance for the market, and in line with the successful approach of being precautious, proactive, and pre-emptive”, Opec+ said.
The group will hold its next meeting on November 26 in Vienna.
The announcement comes as Brent, the benchmark for two thirds of the world’s oil, lost about 11 per cent of its value this year on weak economic growth in the US and China – the two top oil-consuming nations.
Brent settled 2.49 per cent higher at $76.13 a barrel on Friday after the US Senate passed a debt ceiling agreement, averting what would have been a first-ever default.
West Texas Intermediate, the gauge that tracks US crude, was up 2.34 per cent at $71.74 a barrel.
The international benchmark crossed $85 a barrel in April after some Opec+ producers surprised markets by announcing combined voluntary output cuts of 1.16 million barrels per day from May until the end of the year.
The move took the group’s total production curbs to 3.66 million bpd, or 3.7 per cent of global demand.
At an event in Qatar, Saudi Arabia's Energy Minister told oil market short sellers to “watch out” amid volatility in the market.
“I keep advising them that they will be 'ouching'. They did 'ouch' in April,” Prince Abdulaziz bin Salman said.
Short sellers strategically position themselves to make a profit if prices decline, by selling borrowed assets in the hope of repurchasing them at a lower price.
The Saudi minister’s comments helped to lift prices before a sudden turnaround after Russia’s Deputy Prime Minister, Alexander Novak said Opec+ was likely to stick to existing production targets at their meeting.
Traders are looking for signs of falling Russian exports after the country extended its output cut of 500,000 bpd until the end of the year.
Russian exports surged to 8.3 million bpd in April, the highest since Moscow’s invasion of Ukraine last year, the International Energy Agency said in its latest oil market report.
The agency, which attributed the rise in exports to higher production volumes, said that Russia did not adhere to the output curbs.
Swiss lender UBS said the discrepancy between Russia’s stated production cuts and resilient seaborne exports may be due to changes in pipeline exports, domestic oil demand and exports of refined products.
The IEA has predicted that global crude demand will hit record levels this year on the back of an economic recovery in China, the world’s second-largest economy and top crude importer.
But economic growth in the Asian country has been largely uneven since it lifted Covid-19 restrictions earlier this year.
“The non-synchronised recovery in Chinese economic growth is perhaps the biggest challenge for the oil market,” Energy Aspects, a London-based consultancy, said.
“Not all sectors have risen and definitely not at the same pace.”
Oil prices fell more than 2 per cent in a single session last week after a key gauge of China’s manufacturing sector came in lower than market expectations.
China's manufacturing purchasing managers' index (PMI) for May fell to 48.8 from 49.2 in April, according to data from the National Bureau of Statistics, its lowest in five months.
It marked the second consecutive reading below the 50-point mark that separates expansion from contraction.
Analysts and oil industry executives expect the market to tighten in the second half of 2023 on higher Asian consumption and lower output from Opec+ members.
“This is primarily the winter effect in Asia … but also a strong view that we still have that pre-Covid demand yet to come,” Mike Muller, head of Vitol Asia, said at an event in Dubai last month.
There are a lot of “green shoots” for oil bulls in the summer amid production cuts and projections of strong crude demand growth in China, Energy Aspects said.
“But, fundamentals are not going to drive crude’s flat price higher until strong inventory draws are blindingly obvious,” the consultancy said.