Saudis pledge big oil cuts in July as OPEC+ pact extends to 2024

VIENNA, June 4 (Reuters) – Saudi Arabia will cut its production deeply in July on top of a broader OPEC+ deal to limit supply through 2024, as the group tries to prop up oil prices.

Saudi Arabia’s energy ministry said the country’s output would fall from about 10 million bpd in May to 9 million barrels per day (bpd) in July, the biggest reduction in years.

“It’s a Saudi lollipop,” Saudi Energy Minister Prince Abdulaziz told a press conference. “We wanted to ice the cake. We always wanted to add suspense. We didn’t want people trying to guess what we were doing… This market needs stability”.

OPEC+, a group of allies led by Russia and the Organization of the Petroleum Exporting Countries, pumps 40% of the world’s crude oil, meaning its policy decisions can have a huge impact on oil prices.

A surprise decision to cut supply in April sent Brent crude oil $9 higher internationally, but prices retreated under pressure from concerns about the weakness of the global economy and its impact on demand.

On Friday, Brent ended trading for the week at $76.

Saudi Arabia is the only member of OPEC+ with enough spare capacity and storage to easily cut and increase production.

In the early stages of the pandemic in 2020, a group of producers were able to respond quickly to the oversupply that weakened the market when they implemented record output cuts.

Extension till end of 2024

OPEC+ has 3.66 million bpd of cuts, or 3.6% of global demand, including 2 million bpd agreed last year and voluntary cuts of 1.66 million bpd agreed in April.

Those cuts are valid until the end of 2023 and OPEC+ on Sunday said it would extend them until the end of 2024, in a broad agreement on output policy agreed after seven hours of talks.

Since Russia’s aggression against Ukraine began in February last year, the West has accused OPEC of manipulating oil prices and undermining the global economy through high energy costs. The West accuses OPEC of favoring Russia.

In response, OPEC insiders have said that Western money printing over the past decade has fueled inflation and forced oil-producing nations to act to preserve the value of their key exports.

Analysts said Sunday’s OPEC+ decision sent a clear signal the group is ready to support prices and curb speculators.

“The fact that OPEC+ is willing to put in place a price floor and protect it is a clear signal to the market,” said Amrita Sen, co-founder of the Energy Aspects think-tank.

Gary Ross, a senior OPEC watcher and founder of Black Gold Investors, said: “The Saudis have made good on their threats to speculators and they clearly want oil prices to increase.”

As the market closed on Sunday, UBS analyst Giovanni Stanovo predicted a strong start when it reopened on Monday.

In addition to extending existing OPEC+ cuts of 3.66 million bpd, the group agreed on Sunday to cut overall production targets to 1.4 million bpd from January 2024 and current targets to 40.46 million bpd.

However, many of these reductions may not materialize as the group lowered targets for Russia, Nigeria and Angola to bring them in line with actual current production levels.

In contrast, the UAE was allowed to raise production targets by 0.2 million bpd to 3.22 million bpd.

Reporting by Ahmed Khader, Alex Lawler, Maha El Dahan and Julia Payne; Written by Dmitry Zhdanikov; Editing by David Holmes and Barbara Lewis

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