In a surprising move during the recent OPEC talks in Vienna, Saudi Arabia made a significant cut to its own oil output without prior notice to other member states, according to sources familiar with the matter. The reduction was only revealed during the final news conference, leaving some delegates unaware of the decision. This unexpected move showcases Saudi Arabia’s unrivalled influence over the oil market as the top OPEC producer and its ability to affect prices despite the modest impact observed thus far.
Prince Abdulaziz bin Salman, the Saudi Energy Minister, has previously employed surprise tactics to manage oil markets in response to concerns about the global economy’s weakness and its impact on demand. Days ahead of the OPEC+ meeting, Prince Abdulaziz had warned short sellers that he would inflict more pain upon them and urged caution. Following the meeting, he referred to the output cut as a “Saudi lollipop.”
Sources within OPEC+ revealed that the details of Saudi Arabia’s cut were only unveiled during the Sunday evening news conference, catching many delegates off guard. The concept of a cut did not arise during discussions over the weekend regarding a broader deal to limit supply until 2024. One source stated, “No information on the additional cut was shared prior to the press conference. It was a surprise once again.”
Saudi Arabia announced a reduction of 10%, equivalent to 1 million barrels per day (bpd), in its July oil output, bringing it down to 9 million bpd. The country also indicated a potential extension of cuts if required. Meanwhile, OPEC+ agreed to extend existing cuts until 2024 but did not commit to fresh reductions in 2023.
Comprising the Organization of the Petroleum Exporting Countries and its allies, led by Russia, OPEC+ is responsible for approximately 40% of the world’s crude oil production.
In addition to Saudi Arabia’s unexpected cut, OPEC+ lowered its collective production target for 2024, and the nine participating countries extended voluntary cuts from April until the end of 2024.
The United Arab Emirates (UAE) successfully secured a higher output quota that it had long been pursuing, resolving an issue that had caused tension within the group. The dispute centered around Abu Dhabi’s increased output capacity. The Saudi Energy Ministry and OPEC’s Vienna headquarters did not provide comments regarding the matter.
Ahead of the June 4 meeting, there were discussions about potential cuts by OPEC+ states, although these discussions did not progress to an advanced stage in Vienna. Sources indicated that Saudi Arabia recognized the difficulty in securing cuts from other members such as the UAE and Russia, which displayed reluctance to further decrease output.
“The Saudis were cognizant this time they could not push the others,” one OPEC+ source explained. “The UAE is happy with the new quota, and it is a big relief for the Saudis.”
Nonetheless, Saudi Arabia managed to convince other OPEC+ members, including Nigeria and Angola, which had been unable to meet required production levels due to inadequate investment in capacity, to accept lower production targets for 2024 after prolonged negotiations.
Prince Abdulaziz emphasized the group’s fatigue in granting quotas to countries unable to meet them, calling for transparency from Russia regarding its output and export levels in an interview with Al Arabiya.
Sources within OPEC+ revealed that the new targets for Angola and Nigeria still surpass their realistic pumping capabilities, allowing them to avoid actual production cuts. Russia, whose exports remained robust despite Western sanctions, also escaped further reductions.
It remains unclear whether Saudi Arabia hinted at its potential voluntary cut to officials in Russia or the African producers to facilitate a broader agreement.
