RIYADH: Saudi Arabia said on Monday it was extending a voluntary oil production cut and Russia said it was slashing exports, as major producers tried to prop up slumping prices.

In a report announcing that the cut would continue through next month, the official Saudi Press Agency (SPA) said it “can be extended” further, citing an energy ministry source.

“The source confirmed that this 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,” SPA said.

Also on Monday, Russia unveiled its export cut of 500,000bpd for next month “as part of efforts to ensure that the oil market remains balanced”.

The announcement by Alexander Novak, Russian deputy prime minister responsible for energy policy, came on the back of cuts to Russian oil production this year by the same volume as part of Moscow’s response to Western sanctions.

The initial market reaction was muted.

Brent, the international benchmark, was up 0.98 per cent to $76.15 per barrel, and West Texas Intermediate was up 1.02 percent to $71.36 per barrel.

Since the beginning of the year, Brent is down 11 per cent and WTI seven per cent, as a sluggish recovery in China and worries about the US economy weigh on demand forecasts.

“Saudi Arabia is hoping to bring down global inventories over the summer in order to lend support to prices,” said Jamie Ingram, senior editor at MEES.

“There will be little expectation that Russia will fully comply with this latest commitment, but the key thing here is that it’s a public statement of commitment to Saudi Arabia’s market management strategy.”

The average price of Russian Urals was $52.17 per barrel during the first half of this year, down from $84.09 during the same period last year, according to the Russian finance ministry.

That drop reflects the effects of a price cap imposed in December by a coalition involving the Group of Seven leading economies, the European Union and Australia.

Saudi reform agenda

Saudi Arabia is counting on high oil prices to fund an ambitious reform agenda that could shift its economy away from fossil fuels.

Oil giant Aramco said it had recorded profits totalling $161.1 billion last year. Analysts say Riyadh needs oil to be priced at $80 per barrel to balance its budget, which is well above recent averages.

Published in Dawn, July 4th, 2023