Saudi Arabia and Russia, the world’s leading oil exporters, announced Monday their plans to significantly reduce their crude oil production.
Separate statements were issued on July 3 by the Saudi Ministry of Energy and Russia’s Deputy Prime Minister Alexander Novak. Saudi Arabia will voluntarily cut 1 million barrels per day through August, and Russia will trim its oil supply by 500,000 barrels per day.
The joint initiative would decrease the global oil supply by 1.5% in hopes of increasing demand and stimulating global oil prices.
As The Dallas Express previously reported, OPEC Plus — an oil producers’ coalition led by the two countries — unexpectedly announced a voluntary reduction of 500,000 barrels per day from May to the end of the year in April. The group produces 40% of the world’s crude oil supply.
An immediate surge in oil prices followed that announcement and those made on Monday. Brent crude futures bumped up to as high as $76.60 a barrel from $74.56 after the Saudi and Russian statements were released. As of midday Friday, prices were hovering near $78.
The deeper cuts to oil production made by OPEC Plus have been qualified as precautionary amid growing pressure that has stifled demand and kept oil prices low over the past months, according to The New York Times (NYT).
While one concern lies in the increasing interest rates from central banks worldwide, another is the future viability of oil itself.
Alternatives to oil have been growing more popular, exemplified by the rising sales of electric vehicles (EVs).
As recently covered in The Dallas Express, EV sales in the U.S. are even expected to surpass a record 1 million this year, representing an over 16% increase from the year prior.
Russia announcing cuts in line with OPEC Plus’ market management strategies is significant, according to Richard Bronze, head of geopolitics at Energy Aspects, NYT reported. The country had been reluctant to make oil production cuts given the revenue lost due to sanctions resulting from its invasion of Ukraine in 2022.
In particular, the European Union banned the maritime transport of Russian oil and other products, to the advantage of U.S. companies providing natural gas fracked from wells in Texas and Louisiana, as The Dallas Express reported.
The most significant buyers of Russia’s crude oil exports are currently China and India. As reported by The Dallas Express, the latter has become a sort of laundromat for Russian oil by taking it and selling it to Europe to circumvent sanctions.
