Saudi Arabia and Russia stick to voluntary oil cuts amid Middle East tension

Curbs of more than one million barrels per day of crude output to remain in place until the end of 2023

Oil pumpjacks in an oil field in Russia. Bloomberg

Saudi Arabia and Russia will stick to their policy of output cuts of one million barrels per day until the end of this year, despite geopolitical uncertainty in the Middle East roiling global energy markets.

Saudi Arabia, Opec’s biggest oil exporter, will continue the voluntary cut of one million bpd, which went into implementation in July 2023 and was later extended until the end of December, the state-run Saudi Press Agency said on Sunday quoting an official source from the kingdom’s Ministry of Energy.

“Thus, the kingdom’s production in the month of December 2023 will be approximately 9 million bpd,” the source said. “This voluntary cut decision will be reviewed next month to consider extending the cut, deepening the cut, or increasing production.”

Saudi Arabia said the additional voluntary cut comes to “reinforce the precautionary efforts made by Opec+ countries with the aim of supporting the stability and balance of oil markets”.

Russia’s Deputy Prime Minister Alexander Novak echoed comments from Riyadh in a separate announcement.

"Russia will continue additional voluntary decrease of supplies of its oil and oil products to global markets by 300,000 barrels a day, which came into effect in September and October 2023, until late December 2023," Mr Novak said.

Russia will conduct its own separate analysis to gauge the global energy market before deciding either continue oil production cuts or increase oil production”, he added.

The latest move by Saudi Arabia, which leads the Opec+ group of the oil producing nations along with Russia, is in addition to the voluntary cut previously announced in April, which extends until the end of December 2024.

Opec+ has total production cuts in place of 3.66 million bpd, which includes a two million bpd reduction agreed on last year as well as voluntary cuts of 1.66 million bpd announced in April.

The tightening in the market comes amid concerns about a demand slump due to weak economic growth in China, the world's top oil importer.

However, the Israel-Gaza war that broke out in the first week of October has added to the volatility in the oil market with fears that a spread of war to the wider Middle East region will disrupt global oil supplies.

Although Brent has given up most gains since the start of the Israel-Gaza war due to intensified diplomatic efforts to stop it, uncertainty remains extremely high, with no definitive solution on the table, and the situation could spark a broader conflict.

Brent, the benchmark for two thirds of the world’s oil, closed lower for a second week, shedding 2.26 per cent, or $1.96, to settle at $84.89 a barrel on Friday. West Texas Intermediate, the gauge that tracks US crude, slipped 2.36 per cent, or $1.95, to finish at $80.51 a barrel.

On a weekly basis, Brent lost 4.8 per cent while WTI shed nearly 6 per cent.