Call it confidence, blind belief in your own agenda or quite simply a desire to manage a market situation with the armoury at your disposal – but Saudi Arabia remains emphatically committed to its unilateral oil production cut of 1 million barrels per day (bpd).
At least that’s the message conveyed by its Energy Minister Prince Abdulaziz bin Salman at the 8th OPEC International Seminar in Vienna, Austria. On Wednesday (July 5, 2023), Abdulaziz – who was among the first of his OPEC (or “Organization of Petroleum Exporting Company”) peers to comment on the state of the crude oil market – said Saudi Arabia was committed to doing what’s necessary in the interests of “market stability” or in other words – aspirations for a higher oil price.
However, he insisted Riyadh was neither returning to nor coveting a return to a 1980s-style swing producer status. Instead, the country – despite having acted unilaterally in cutting production for July and August – was working in concert with its partners, he added.
And with Russia recently announcing its “voluntary production cut” of 500,000 bpd, mainly via a reduction in cargoes designated for exports, Abdulaziz was also left to laud the development and OPEC+ as an example of unity and teamwork with Moscow, given the absence of any representatives of repute from the Kremlin to the OPEC seminar. For context, OPEC+ is a group of Russia-led non-OPEC oil producers and OPEC’s existing membership.
The Saudi Energy Minister also accused the media and some in the energy analysis community of “exaggerated negativity” and reiterated his belief that the latest cuts will make a tangible difference to the market (and the oil price).
Unsurprisingly, Abdulaziz’s stance received a strong backing from his OPEC peers. United Arab Emirates’ Energy Minister Suhail Al Mazrouei told the OPEC Seminar that an “appreciation” of what OPEC+ is doing seems to be “missing” from global oil market commentary.
He added that the way the group assess the global oil market “differs” from how traders and speculators approach it. “The voluntary cuts are all about market stability.”
Prior to his OPEC Seminar comments, Al Mazrouei told reporters that the latest cuts would be “enough” to assess the direction of the market, adding that his country would not be contributing to further cuts – something it lobbied hard for and succeeded at the last OPEC+ meeting.
All the while, Brent – the global proxy crude oil benchmark – remains in backwardation, i.e., the current/front month crude price is trading higher than prices quoted in the futures market further down the line.
With demand uncertainties on the horizon – largely down to a high interest rate environment weighing on consumers’ minds – and non-OPEC production remaining strong, there are no certainties the current Saudi strategy will pay dividends as the oil price remains stuck in the $72-77 range. However, Abdulaziz wants the market to be certain that he’s committed to staying the course. How it unfolds remains to be seen, but the near-term market signals aren’t particularly encouraging.
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