Saudi Arabia and Russia will maintain oil production cuts till the end of 2023.
As reported on November 5 by the Saudi Press Agency, Saudi Arabia plans to persist with its voluntary reduction of 1 million barrels per day (b/d) in December 2023, which will maintain the country’s production level at an approximate 9 million barrels per day.
Simultaneously, Russia, through statements from Deputy Prime Minister Alexander Novak on November 5, affirmed its dedication to sustaining a 300,000 b/d cut in crude oil and oil products exports until the culmination of 2023.
Both Saudi Arabia and Russia have made it clear that this decision to continue the voluntary production cuts will undergo a review in December 2023.
This review will be essential in determining whether to deepen the existing cuts further or potentially increase production.
During the same period, Saudi Arabia will announce plans for January 2024, whether to maintain, deepen or roll back the voluntary cut.
The rationale behind these continued voluntary reductions is rooted in the collective efforts of OPEC countries. The overarching goal is to fortify the precautionary measures taken, aiming to support the stability and balance of oil markets.
This collective commitment underlines their concerted endeavor to maintain equilibrium and stability within the oil industry, highlighting the importance of market balance in global oil supply and demand dynamics.
According to S&P Global Commodity Insights, industry experts predict that Russian oil production will remain stable until the end of 2023, alongside their OPEC+ counterparts who are committed to maintaining production discipline to support oil prices.
However, there are recent developments that have increased concerns about potential disruptions in the global oil supply.
On October 7, Hamas initiated an attack on Israel, leading to calls for an oil export embargo by some Middle East producers.
The ongoing conflict also poses a threat to oil production and supply infrastructure. Additionally, discussions among Western officials about imposing sanctions have intensified.
It’s important to note that, as of October 27, S&P Global Commodity Insights indicated that the fundamentals of the oil market do not currently suggest a supply crisis. However, the risk of a supply disruption is now higher compared to the situation on October 6.
The next OPEC+ ministerial meeting, scheduled for November 26, will be crucial for discussing market conditions and production quotas.
This meeting will provide further insights into how the global oil market is likely to evolve in response to these ongoing developments.
It is important to note that in its October 2023 Commodity Outlook report, the World Bank stated that concerns about the conflict in the Middle East and geopolitical risks, coupled with the OPEC+ supply contraction and rising middle-distillate demand, are anticipated to bolster prices in the final quarter of 2023.
However, these forecasts generally indicate the anticipation of limited impact from the conflict, provided it doesn’t escalate further.
The forecast also hinges on the assumption that global oil production, both within and outside OPEC+, will rise, assuming certain OPEC+ supply cuts are reversed in early 2024.