Oil prices surged above $90 per barrel as Saudi Arabia and Russia decided to extend their voluntary production and export cuts until the end of 2023. Saudi Arabia, leading the OPEC+ alliance with Russia, initially implemented an additional 1 million barrels per day (b/d) reduction from the global market beginning in July, The Financial Times reported.
On Tuesday, Saudi Arabia’s Ministry of Energy announced the extension of a 1 million b/d cut through December. While Russia extended its own cuts by 300,000 b/d until year-end. These cuts to oil production are aimed at supporting higher oil prices and maintaining the unity of the two major oil-producing nations.
The market response saw Brent crude, the international benchmark, climb nearly 2% to $90.75 a barrel, while West Texas Intermediate rose 2.2% to $87.42 a barrel. These supply cuts are expected to create oil deficits globally, likely pushing prices even higher.
However, these oil cuts may strain the already fickle relations between Saudi Arabia and the U.S. Biden administration, which aims to keep fuel prices in check ahead of the upcoming presidential election. The prolonged cuts also serve Saudi Arabia’s interest in securing higher oil prices to support its economic reform program. Saudi Arabia’s commitment to these cuts indicates its commitment to maintaining high oil prices, although the possibility of further adjustments remains open. Saudi Arabia’s current output is around 9 million b/d, significantly below its maximum capacity of 12 million b/d.
