Oil hits $90 for first time in 2023 as Saudi Arabia and Russia extend cuts

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Oil prices topped $90 a barrel for the first time in 2023 on Tuesday as Saudi Arabia and Russia said they would extend voluntary production and export cuts until the end of the year.

Saudi Arabia, which leads an expanded OPEC+ cartel with Russia, has cut an additional 1 million barrels a day from global markets since July in what was initially described as a temporary measure.

But Saudi state media has extended the cuts until the end of September, citing the Ministry of Energy as saying the kingdom will continue to cut production by 1 million barrels per day until the end of December.

Russia has also increased voluntary export cuts in recent months, with Deputy Prime Minister Alexander Novak adding on Tuesday that its export cut of 300,000 barrels per day would last until the end of the year.

The move, which could reignite global inflation fears, is the latest move by the world’s two largest oil producers to boost prices even as much of the world grapples with rising energy costs.

That could raise tensions with the White House, which has criticized the kingdom for working closely with Russia despite Moscow’s sweeping invasion of Ukraine and weaponization of gas supplies to Europe.

The Biden administration is keen to rein in oil prices ahead of next year’s presidential election, as inflation and fuel costs have become areas of Republican attack.

U.S. National Security Adviser Jack Sullivan said after Saudi Arabia’s announcement on Tuesday that President Joe Biden was focused on “doing everything we can so that we can deliver lower gas prices to American consumers.”

But he said there were no plans for a bilateral meeting with Saudi Crown Prince Mohammed bin Salman at this weekend’s G20 summit in New Delhi and Tuesday’s announcement would not change that.

Bob McNally, president of Rapidan Energy and a former White House energy adviser, said the output cut appeared to be an attempt to show Saudi Arabia and Russia “solidarity” on oil policy and limit the impact of slowing world growth on crude. risk of stress. price.

“Barring a sharp economic downturn, these supply cuts will push the global oil balance into a deep deficit and push crude prices well above $90 a barrel,” McNally added.

International benchmark Brent crude rose 1.2% to $90.04 on Tuesday, topping $90 a barrel for the first time since November. U.S. West Texas Intermediate crude closed at $86.69, up similarly.

Industry insiders fear Russian President Vladimir Putin may try to use oil supplies to influence the U.S. election, as potential candidates such as former President Donald Trump have said they will try to get Ukraine to negotiate with Moscow.

Saudi Arabia is also close to Trump, who made his first foreign trip to the kingdom before scrapping the Iran nuclear deal in 2017. Saudi Arabia’s de facto leader, the Crown Prince, also wants higher oil prices to fund his economic reform plans.

His half-brother, Prince Abdulaziz bin Salman, is Saudi Arabia’s energy minister and has put the kingdom’s oil policy on a more serious course despite U.S. pressure to boost output to help curb inflation. based on self-confidence.

Saudi Arabia is clearly “committed” to higher prices and wants to make sure crude prices don’t fall back, said Dan Pickering, chief investment officer at Pickering Energy Partners. Brent crude prices are up about 15% since the production cuts took effect in early August.

“To me, extending the cuts proves that the Saudis are serious,” Pickering said. “The floor price for crude . . . is moving higher.”

Saudi Arabian state media said the decision would still be reviewed on a monthly basis, but stressed that output could be revised up or down, suggesting the kingdom was not ruling out further cuts.

Through a combination of OPEC+ mandated production cut targets and voluntary cuts, its output has been reduced to about 9 million bpd from about 10.5 million bpd in April.

The latest announcement means that Saudi Arabia’s oil production is likely to remain at 9 million barrels per day until the end of December, 25% below its maximum capacity of 12 million barrels per day.