OPEC to extend oil production cut until June

OPEC to extend oil production cut until June

Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, said Sunday it would extend oil production cuts until June, noting it was acting “in coordination with some” other states. Saudi allies including Kuwait and the United Arab Emirates said Sunday they would also continue their cuts.

The decision to maintain production cuts was expected and appears intended to support what could otherwise be weak oil prices. Some analysts predict that oil supply will exceed demand in the first half of this year. Without continued discounts, prices could fall.

Saudi Arabia called the move a “precaution.” Holding back oil production is “aimed at supporting the stability and balance of oil markets,” the kingdom said in a statement carried by the official Saudi Press Agency.

The Saudis said the million barrels per day they began cutting in July “will be returned gradually, subject to market conditions.”

Giacomo Romeo, an analyst at investment bank Jefferies, said on Sunday the move confirmed the group was “in no rush to return” its supplies.

The Saudis are selling far less oil than they are able to produce, while countries outside OPEC, notably the United States and Guyana, are increasing their production. OPEC Plus member Russia has also managed to produce more oil than some analysts expected after its 2022 invasion of Ukraine.

Oil demand growth is also expected to be modest this year, at about 1.5 million barrels per day, or about 1.5 percent of global demand, according to Goldman Sachs.

Sunday’s announcement follows one the Saudis made in January that they were abandoning a campaign to increase the amount of oil that Saudi Aramco, the state oil giant, can produce. Aramco had planned to be able to produce 13 million barrels per day, an increase of one million per day from what it can currently produce.

The January move confirmed that the kingdom “wants a restricted oil market,” Goldman Sachs analysts said in a recent research note.

Furthermore, the Saudis appear to have decided, at least for now, that there is no point in spending billions of dollars to be able to pump at levels much higher than the nine million barrels per day they currently produce.

Oil prices have soared in recent weeks, partly due to fears that the war between Israel and Gaza could spread to oil-producing countries in the Middle East. Brent crude, the international benchmark, was selling at around $83.55 late last week, its highest level in around four months.

Analysts say price increases remain modest so far because there have been no interruptions in oil production as a result of the fighting.

Instead, OPEC and its allies are voluntarily taking oil off the market. In November, several OPEC Plus members, including the United Arab Emirates, Iraq and Kuwait, joined the Saudis in agreeing to further cuts.

The millions of barrels of daily production these countries keep off the market could be used in an emergency to cover most potential disruptions, analysts say.

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David B.Otero

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