Saudi Arabia and the UAE among Opec+ members extending oil output cuts

Cap of 2.2 million barrels per day through to the end of June adds to voluntary cuts made in April, which are in place until the end of December

The latest oil production cuts are aimed at ensuring balance and stability in the oil market, Opec+ says. AP
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Several members of the Opec+ group oil producers, including Saudi Arabia, the UAE and Kuwait, will extend oil output cuts as part of efforts to support market balance and stability.

In total, Opec+ members are extending additional voluntary cuts of 2.2 million barrels per day to the end of second quarter, the Opec secretariat said in a statement on Sunday.

The caps on production are calculated from the 2024 required production level, set out in the Opec ministerial meeting in June last year.

The move is in addition to the cuts announced in April last year, which have been extended until the end of 2024.

"Afterwards, in order to support market stability, these voluntary cuts will be returned gradually, subject to market conditions," the Opec statement said.

Saudi Arabia, the world’s biggest oil exporter and Opec's largest producer, will extend its voluntary cut of one million bpd through to the end of the second quarter of 2024.

The production cap is in addition to the voluntary cut of 500,000 bpd announced by the kingdom in April 2023, which will remain in effect until the end of December 2024, the Saudi Press Agency reported on Sunday.

The kingdom’s production will be about nine million bpd until the end of June 2024.

Meanwhile, the UAE will extend its additional voluntary cut of 163,000 bpd for the second quarter of 2024. The country's production will remain at 2.912 million bpd until the end of June 2024, state news agency Wam reported.

The reduction is in addition to the voluntary cut of 144,000 bpd announced by the UAE in April 2023, which extends until the end of December this year.

Other Opec+ members making the cuts include Iraq (220,000 bpd), Kuwait (135,000 bpd), Kazakhstan (82,000 bpd), Algeria (51,000 bpd) and Oman (42,000 bpd).

In addition, Russia will cut 471,000 bpd during the second quarter both in terms oil production caps as well as crude exports. This will be along with its voluntary cut of 500,000 bpd announced in April 2023, which extends until the end of December.

The export cut will be made from the average export levels of May and June 2023, the statement said.

Brent, the global benchmark for two thirds of the world's oil, was trading 0.08 per cent higher at $83.62 a barrel at 8.55am UAE time on Monday. West Texas Intermediate, the gauge that tracks US crude, was down 0.06 per cent at $79.92 a barrel.

"An extension of the Opec+ cuts was our baseline scenario for oil market balances this year as returning a significant volume of barrels back to the market for Q2 [the second quarter] would likely have overwhelmed demand even more and led to substantial inventory builds," said Edward Bell, head of market economics at Emirates NBD.

The common view in the market was that the group would partially extend the cuts into this year’s second quarter in some form, said Jorge Leon, senior vice president at Rystad Energy.

However, the latest announcement goes above market expectations, he said.

"Our assumption was that there would be a prompt unwinding of the voluntary cuts in the second quarter so that Opec+ crude production would rapidly increase above 36 million bpd by May."

The updated profile shows Opec+ crude production at 34.6 million bpd for the whole of the second quarter before increasing to about 36.3 million bpd in the second half of the year.

The move "clearly shows strong unity within the group, something that was put into question after the November ministerial meeting, which saw Angola leaving Opec", he said.

"It also shows robust determination to defend a price floor above $80 per barrel in the second quarter. Our market assessment showed that if Opec+ rapidly unwound the voluntary cuts downside price pressure would have accentuated, taking prices down to $77 per barrel in May."

Crude prices have been volatile this year, largely due to supply concerns caused by attacks on oil vessels in the Red Sea.

Meanwhile, persistent high inflation in major economies has added to uncertainty regarding the outlook for crude demand, which has capped oil price gains.

Opec expects global oil demand growth at 2.25 million bpd this year, supported by improving economic activity in China.

The latest announcement by Opec+ "tightens the oil market and adds upside price pressure", Mr Leon said.

"We believe that the resulting upside price in the second quarter will not have a significant impact on demand prospects and will not derail the fight against inflation in Western economies," he added.

"At the same time, the impact on US shale production should be marginal."

Looking into the second half of this year, Rystad said it expected a strong demand rebound in the market, which implied that no further extension of the voluntary cuts were needed to support prices.

If the voluntary cuts are fully unwound at the end of June, the consultancy anticipates a market deficit of about 440,000 bpd in the second half of the year.

The recent increase in geopolitical risk in the market could also be playing a role in the latest decision by Opec+, Mr Leon said.

"Extending voluntary cuts instead of unwinding the cuts provides Saudi Arabia, the UAE and Kuwait with more spare capacity that could be needed if the conflict escalates further, and the market sees actual supply disruptions," he said.

Updated: March 04, 2024, 7:54 AM