Last week, the OPEC+ oil producers reached an agreement to implement voluntary production cuts amounting to approximately 2.2 million barrels per day (bpd) in early 2024.

The Saudi energy minister, in an interview with Bloomberg, said the supply reductions announced last week of more than 2 million bpd – about half of which are coming from Saudi Arabia – will only be withdrawn after consideration of market conditions and using a “phased-in approach.”

Furthermore, Saudi Arabia has announced a voluntary extension of its 1 million bpd oil production cut, which began in July, until the end of the first quarter of 2024.

Supporting market stability

The Ministry of Energy, in coordination with select countries participating in the OPEC+ agreement, has announced that Saudi Arabia’s production will be maintained at approximately 9 million bpd until the end of March. These additional reductions are aimed at supporting market stability and will be gradually restored in accordance with prevailing market conditions.

A source from the Ministry of Energy, as reported by the Saudi Press Agency (SPA), stated that this production cut is in addition to the previously announced voluntary cut of 500 thousand barrels per day by the kingdom in April 2023, which will now be extended until the end of December 2024. Other countries such as Algeria, Kuwait, the United Arab Emirates (UAE), and Oman have also announced voluntary cuts.

During an interview with Bloomberg, Prince Abdulaziz addressed concerns about crude oil prices, which remained below their pre-OPEC+ levels and were trading near $79 a barrel in London. Market observers expressed doubts about whether all the promised supply cuts would actually materialize, with only about half of the cuts being genuinely new.

Prince Abdulaziz sought to dispel these doubts, affirming in a Monday interview in Riyadh that he firmly believes a reduction of 2.2 million bpd will indeed occur.

He expressed confidence that this reduction would even offset the usual inventory builds that typically occur in the first quarter, highlighting positive indications of improving demand.

Regarding the agreement between OPEC and its allies, there is a particular focus on Russia and how it will contribute. Unlike OPEC members, Russia’s contribution comes from export restrictions rather than explicit production cuts, according to Bloomberg.

Prince Abdulaziz expressed his preference for a production cut but Russia has consistently argued that severe winter weather and geological conditions make it challenging to reduce production in the early months of the year.

“We made an effort,” Prince Abdulaziz remarked, acknowledging the difficulties Russia faces in cutting production during winter.

Meanwhile, OPEC Secretary-General Haitham Al Ghais emphasized that advocating for oil to remain underground would not result in an energy transition but rather create chaos in the sector.

He stated that saying oil must stay in the ground will lead to energy chaos.

“We don’t feel that vilifying [the] industry is a constructive approach,” Al Ghais said.