Saudi cuts output at OPEC+ meet in bid to support prices amid softer demand

Saudi cuts output at OPEC+ meet in bid to support prices amid softer demand

KUWAIT: At the recently concluded OPEC+ ministerial meeting, after two days of intense negotiations, Saudi Arabia surprised with its announcement of an additional, unilateral crude production cut of 1 mb/d next month. The move adds to an agreement by OPEC+ to extend existing production cuts of around 3.6 mb/d, including at least 1.2 mb/d of voluntary cuts, beyond 2023 to end-2024. Also notable is the UAE’s securing of a 200 kb/d increase to its reference baseline for 2024 to reflect its increased production capacity.

This was possible only after several OPEC+ members including Angola and Nigeria, acquiesced to an offsetting reduction in their baselines to reflect a decline in their own production capacities. Assuming no change to OPEC+ policy, therefore, as things stand, the only source of incremental supply in 2024 from OPEC+ will come from the UAE. In the run up to the OPEC+ meeting, anticipation had been building that production cuts would be back on the table after prices dropped in May and after Saudi Prince Abdulaziz bemoaned the influence of short sellers on the market, warning them to “watch out”.

Markets took this as a thinly veiled signal about impending production cuts. May’s oil price drop was the fifth