Amid weakening demand for oil, Saudi Arabia and Russia have further slashed crude output as they attempt to extract more revenue from the commodity. Monday's decision to enforce more cuts in August propped up the prices. While benchmark US crude rose 77 cents to $71.41 per barrel, Brent crude prices rose by 70 cents to $76.11.
Riyadh said it was extending its one million barrels per day output cut for another month and Moscow said it would slash its oil exports by 500,000 barrels per day in August. Saudi Arabia, which has been leading the Opec bloc in reducing crude availability, hinted that its output cut was likely to be extended beyond August.
1.5% Global Crude Oil Supply
According to Reuters calculation, these cuts amount to 1.5 percent of global crude oil supply. The OPEC+ cartel pumps around 40 percent of the world's crude oil. "The kingdom's production for the month of August 2023 will be approximately 9 million barrels per day ... This additional voluntary cut comes to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets," a Saudi official from the Ministry of Energy said, according to the country's official news agency.
Oil prices have been range-bound for months despite the Saudi and Russian efforts to boost prices by limiting supplies. Both these producers need higher revenue from oil to meet their budget agenda. While the Saudis have embarked on highly ambitious development projects, Russia depends on higher oil revenues to sustain its military campaign in Ukraine.
Opec's Demand Projection
Last week, the Organization of the Petroleum Exporting Countries (OPEC) said that global oil demand is expected to zoom 23 percent by 2045 even as the global economy doubles in size. As per the cartel's projection, global oil demand will hit 110 million barrels per day after about two decades.
Oil consumption rose by 2.9 million barrels per day globally last year to 97.3 million barrels according to the Statistical Review of World Energy.
"Oil is irreplaceable for the foreseeable future ... In our worldwide outlook, we see global oil demand rising to 110 million barrels a day by 2045 .... Gas hydro, nuclear hydrogen and biomass will expand. But it is clear that oil remains an integral part of the mix," OPEC Secretary General Haitham Al Ghais said.
Straining Dynamics?
There were reports earlier that Saudi Arabia's push to cut output was straining the dynamics within the cartel. Key members of the cartel such as the UAE were reportedly against output cuts, and in fact have been pushing in the opposite direction, reports said. UAE has invested huge sums in the upstream sector and wants to capitalize on its production capacity boost.
"OPEC's current production cuts hinder this objective, as future volume increases will be restricted. Similarly, African members like Nigeria and Angola find themselves in a similar position, with their current production volumes not aligning with their nominal production capacities. OPEC's move to reassess African quotas based on their actual production levels is perceived as a direct threat to their future prospects," an analysis by Oilprice.com said.
