Saudi Arabia to prolong million-barrel oil supply cut

Saudi Arabia is expected to extend its unilateral 1 million barrel-a-day oil output cut for at least another month, as global crude markets remain pressured by economic fears, Report informs via Bloomberg.

Riyadh surprised oil traders earlier this month when it announced the extra cutback, which came on top of curbs it was already making with fellow OPEC+ producers. The supply reduction will take effect in July, with the possibility of extensions.

As lackluster demand in China caps crude prices near $75 a barrel —below the level the kingdom needs to cover its budget — almost all traders and analysts surveyed by Bloomberg predict a continuation of the Saudi cut into August. Several OPEC+ delegates also said that, while the kingdom’s decisions can be unpredictable, an extension looks likely.

“It would be too damaging to prices to remove it at this time, given the fragility of sentiment,” said Gary Ross, a veteran oil consultant turned hedge fund manager at Black Gold Investors LLC.

Oil prices were widely expected to rally this year, but have instead sagged about 13% in London as China’s post-pandemic demand rebound proves disappointing, and climbing interest rates spread fears of recession elsewhere. Wall Street forecasters like Goldman Sachs Group Inc. and Morgan Stanley have abandoned projections for the return of $100-a-barrel crude.

The price retreat has brought relief for inflation-wracked consumers in nations such as the US, but it’s putting a financial strain on the Saudis, the de facto leaders of an alliance between the Organization of Petroleum Exporting Countries and other producers known as OPEC+.

Even before the additional supply cut unveiled on June 4, the International Monetary Fund estimated the kingdom required oil prices above $80 to finance ambitious reforms by Crown Prince Mohammad bin Salman. Ceding further sales volumes by cutting production will probably push that target higher.

The solo cut is set to slash Saudi output to 9 million barrels a day, the lowest since June 2021, when output was still recovering from the depths of the Covid-19 pandemic.