Saudi Arabia pledged deep oil cuts in July as OPEC+ extended the pact to 2024

VIENNA (June 4) (Reuters) – Saudi Arabia will cut its output sharply in July on top of a broader OPEC+ deal to limit supplies until 2024 as the group seeks to prop up slumping oil prices.

Saudi Arabia’s energy ministry said the country’s production would drop to nine million bpd in July from about ten million bpd in May, the biggest cut in years.

“This is a Saudi lollipop,” Saudi Energy Minister Prince Abdulaziz said at a news conference. “We wanted to put the icing on the cake. We always want to add suspense. We don’t want people trying to predict what we’re doing… This market needs stability.”

OPEC +, which includes the Organization of the Petroleum Exporting Countries and allies led by Russia, pumps about 40 percent of global crude, which means that its political decisions can have a significant impact on oil prices.

A sudden decision to cut supplies in April briefly sent the international benchmark Brent crude up nearly $9, but prices have since fallen under pressure from concerns about a weak global economy and its impact on demand.

On Friday, Brent crude ended the week’s trading at $76.

Saudi Arabia is the only OPEC+ member with enough spare storage capacity to be able to easily reduce and increase production.

It was able to respond quickly to the market-weakening oversupply in the early stages of the pandemic in 2020 when the producer group implemented record production cuts.

The extension has been extended until the end of 2024

OPEC+ made cuts of 3.66 million bpd, equivalent to 3.6% of global demand, including the 2 million bpd agreed last year and a voluntary cut of 1.66 million bpd in April.

Those cuts were in place until the end of 2023, and OPEC+ said on Sunday, in a broader agreement on production policy agreed after seven hours of talks, that it would extend them until the end of 2024.

Since the start of the Russian invasion of Ukraine in February of last year, Western countries have accused OPEC of manipulating oil prices and undermining the global economy through rising energy costs. The West also accused OPEC of siding with Russia.

In response, OPEC insiders said that money printing by the West over the past decade has driven inflation and forced oil-producing countries to work to preserve the value of their main exports.

Analysts said the OPEC+ decision on Sunday sent a clear signal that the group is ready to support prices and try to thwart speculators.

“It’s a clear signal to the market that OPEC+ is ready to cap and defend the price,” said Amrita Sen, founding partner of think tank Energy Aspects.

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

With the market remaining closed on Sunday, UBS analyst Giovanni Stonovo predicted a strong start when it reopens on Monday.

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

However, many of these cuts will not be real as the group lowered targets for Russia, Nigeria and Angola to bring them in line with actual current production levels.

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

(Covering) Ahmed Ghaddar, Alex Lawler, Maha El Dahan and Julia Payne. Writing by Dmitry Zhdannikov; Editing by David Holmes and Barbara Lewis

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