Saudi Arabia on Monday extended its oil-export cut of 1 million barrels per day for another month and Russia said it will cut 500,000 bpd from its oil exports in August, in moves that could support prices at comfortable levels for producers.
The export cuts by the two largest oil producers in the Opec+ group follow the drop in benchmark oil futures from highs last year above $100 per barrel, although oil prices remain historically high. They come as many nations grapple with high energy prices that contribute to broader inflation and affect consumers’ discretionary spending.
“Within the efforts to ensure the oil market remains balanced, Russia will voluntarily reduce its oil supply by 500,000 barrels per day by cutting its exports by that quantity to global markets,” Russian Deputy Prime Minister Alexander Novak said.
Saudi Arabia said it will extend its voluntary cut of 1 million bpd for another month to the end of August, according to the country’s official Saudi press agency.
The pledges contributed to higher oil prices on Monday, with front-month Brent oil futures rising 1% to about $76 per barrel.
Russia’s pledge on Monday was different from the nation’s commitment to a group of Opec+ countries earlier this year that it would cut production by 500,000 bpd — a target that had already been achieved, according to earlier statements from Novak.
However, Russian oil producers reportedly have increased oil exports since the second quarter of this year after improving logistics in moving output to India, China, Pakistan and other distant countries, attracting buyers with strong discounts.
Russian oil imports to India rose to a record high of 1.5 million bpd in June, according to Bloomberg.
Independent estimates of Russian seaborne oil exports, which are based on monitoring tanker traffic, suggested more than a 6% jump in such shipments alone from April to May, to more than 3.7 million bpd.
Russia’s Finance Ministry said on Monday that its assessments showed the country’s commonly traded Urals oil blend averaged prices of just above $55 per barrel in June, up from $53 in May.
This remained below the price-cap restriction of $60 per barrel for Russian oil that came into force in December last year, after its approval by G7 countries.
At the end of June, Russia’s President Vladimir Putin extended his earlier prohibition on Russian producers selling their output under the price-cap mechanism until the end of this year.
“Russian oil exports are quite high, but if the global price remains at the current level, then there may be no option for the government of reaching this year’s targets for oil and gas budget revenues,” said Dmitry Kasatkin, a partner at Moscow-based Kasatkin Consultancy.
“Nevertheless, this is a rather risky move that could lead to additional [Russian] budget losses if global oil demand does not recover as expected,” he said.
Russian authorities may see additional effects from the export cut, such as higher oil deliveries to domestic refineries to increase output of fuels, which is more “beneficial for the state than for oil companies”, Kasatkin said.
Mikhail Krutikhin, a partner in Moscow-based consultancy RusEnergy, said Russia’s new pledge may be just a verbal declaration of support for Opec’s de facto leader, Saudi Arabia.
Opec did not immediately provide comment about the Saudi Arabian and Russian moves after receiving a request on Monday from Upstream.
Source: https://www.upstreamonline.com/