Saudi Arabia will extend its voluntary 1 million bpd crude oil production cut through the end of this year, according to the official Saudi Press Agency.
This brings Saudi Arabia’s targeted crude oil production to 9 million bpd for the remainder of the year. However, the extension will still be reviewed monthly, media reported on Tuesday afternoon.
Oil markets have been guessing how OPEC will proceed with its oil production strategy—with Russia and Saudi Arabia’s role in OPEC’s plan taking the top spot of concern. Market analysts routinely pick oil price points that would trigger additional action by Saudi Arabia. Currently, Brent crude oil is trading at just below $90 per barrel, at $90.57 at 9:35 am ET, up $0.96 (+1.08%) on the day. Brent crude has shot up $6 per barrel over the last month.
“I keep advising them that they will be ouching" pic.twitter.com/Tt3rVox9I2
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As Saudi Arabia plans to extend the production cut and the market has a chance to digest Saudi Arabia’s announcement, further oil price moves are to be expected.
The question now is whether this move should be viewed through a bullish or bearish lens. While production cuts from Saudi Arabia could be seen as bullish in restricting global oil supplies, the bears are quick to point out that this means Saudi Arabia does not see China’s crude oil demand rising enough to warrant loosening the reins on its current production cut strategy.
Originally, Saudi Arabia had proposed the additional 1 million bpd supply cut—a voluntary supply cut--as a July-only event. Later, however, Saudi Arabia extended the production cut into August and September. The cut is not required as part of the deal reached with its OPEC and OPEC+ groups, rather it is in addition to the OPEC mandates.
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By Julianne Geiger for Oilprice.com
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And contrary to claims by analysts that the rise in prices was triggered by Saudi Arabia’s voluntary production cut of 1.0 million barrels a day (mbd) in June for July (later extended the end of the year), I always argued that the cut has nothing to do with the market and everything to do with Saudi production difficulties. Saudi production is falling because of depletion and aging giant oilfields.
90% of Saudi crude production has for the last 74 years been coming from five giant, aging and fast-depleting oilfields (Ghawar, Safaniya, Hanifa, Khurais and Zuluf ) all of which are more than 74 years old and which are being kept producing by a huge injection of water.
Saudi real production is estimated at 6.0-6.5 million barrels a day (mbd) with 3.5-4.0 mbd coming from stored oil to raise the level of supply to 10.0 mbd. Saudi exports were estimated in August at 5.6 mbd, down from 6.3 mbd in July. By cutting production by 1.0 mbd, Saudi Arabia gives itself time to replenish its stored oil without which it could neither perform any major maintenance work nor would it be able to have any influence on the market and prices.
Saudi oil production is declining by an estimated 5% annually. By 2026 Saudi production is projected to fall to 5.1-5.5 mbd with consumption rising to 3.6 mbd leaving only 1.5-1.9 mbd for exports.
It is possible that by 2030 Saudi production would have fallen to 4.12-4.4 mbd with consumption rising to 4.0 mbd leaving only 120,000-400,000 barrels a day (b/d) for export by which time Saudi Arabia would have virtually ceased to remain a crude exporter.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert
#irony the USA remains a massive producer #irony Venezuela with the World's largest oil reserves so claimed does not. Long $slb Slumberger strong buy