Saudi Arabia Will Likely Roll over 1 Mln Bpd Cut into October, Analysts Say

Reuters

16:49 JST, August 24, 2023

LONDON (Reuters) – Saudi Arabia will likely roll over a voluntary oil cut of 1 million barrels per day for a third consecutive month into October, five analysts said, amid uncertainty about supplies and as the kingdom targets drawing down global inventories further.

OPEC+, which groups the Organization of the Petroleum Exporting Countries and allies led by Russia, agreed a broad deal in early June to curtail supplies until the end of 2024. Saudi Arabia at the time announced the additional voluntary cut which brought its oil production to a multi-year low of 9 million bpd.

Earlier this month, Riyadh extended the voluntary cut into September, with the energy ministry saying that it could be “extended, or extended and deepened.”

“We think Saudi Arabia will extend the cut in full at least through October,” Richard Bronze, analyst at consultancy Energy Aspects said.

“The kingdom is adopting a cautious approach after the weakness in oil markets over the first half of the year and will want to see global inventories significantly decline before starting to unwind the additional voluntary cuts,” he added.

The Saudi energy ministry did not immediately respond to a request for comment.

Brent LcOC1 oil prices in July were up 14% on the previous month, the biggest monthly increase since January 2022. Prices in August are trending about 3% lower on the previous month as China demand worries weigh.

China has also been drawing on record inventories amassed earlier this year as higher oil prices drive refiners in the world’s biggest oil importer to scale back purchases, traders and analysts said.

Two other analysts, brokerage PVM Oil’s John Evans and Saxo Bank’s Ole Hansen, said a possible resumption of oil production from Iraq’s Kurdistan region may prompt Riyadh to withhold additional supplies to the market for now.

Iraq and Turkey held talks this week to resume about 450,000 bpd of exports from northern Iraq which Turkey had halted in late March, but an agreement is yet to be reached.

Baghdad has been able to partly compensate for the loss of exports from the north by increasing production elsewhere. In July, it produced 4.2 million bpd, according to OPEC secondary sources, just below its quota under the OPEC+ deal.

“The market remains on shaky ground, especially with a rather large October refinery maintenance,” Gary Ross, of Black Gold Investors and a veteran OPEC watcher, said.

UBS analyst Giovanni Staunovo said Saudi will likely only reduce its voluntary cut when it sees global oil inventories fall further from their current levels.

“Cutting production is easy but adding them back in is a different story, especially if the fundamental outlook is not strong enough to support it,” Hansen said.