In a move that risks further global inflationary pressures, Saudi Arabia and Russia, two of the largest oil-exporting countries, have extended their supply cuts until the end of the year, leading brent oil above US$90 per barrel for the first time since November, according to a Bloomberg report.
Saudi Arabia confirmed in a state-run press agency statement that it will maintain its unilateral production cut of one million barrels per day until December.
This will keep the country's oil output at about nine million barrels a day, the lowest in several years.
Separately, Russia’s Deputy Prime Minister Alexander Novak said the country would also continue its 300,000 barrels a day export reduction for the same period.
Higher oil prices
The surge in oil prices follows a tightening market as demand rises to record levels and inventories deplete.
Even concerns over China’s faltering economic growth have failed to dampen a seasonal price rally.
In the United States, higher oil prices will challenge the Biden administration’s efforts to prevent gasoline prices from reaching $4 per gallon.
National Security Advisor Jake Sullivan said yesterday the United States continued to engage with Saudi Arabia at multiple levels to convey its stance.
“And that will continue and we will make sure that they understand where we stand, and we will come to understand where they stand as well,” he said during a briefing to reporters.
Exceeding expectations
Saudi Arabia’s decision to maintain its supply cut surpassed market expectations.
A Bloomberg survey of 20 out of 25 traders and analysts last week had predicted the production cutback to extend for just one more month.
RBC Capital Markets LLC managing director Michael Tran told Bloomberg: “Today’s development is a stark reminder to short sellers to not position against the central bank of oil.
“The Saudis would rather overtighten rather than course correct later given the global seasonal peak in demand is in the rearview, particularly given the soft macro framework in China.”
Saudis to the rescue
Saudi Arabia first initiated the additional supply cut in July, in a move to support prices.
However, its defence of the market has come at a cost, with the International Monetary Fund sharply downgrading its economic growth projections for the kingdom due to the loss in sales volumes.
Riyadh remains unperturbed, saying in its statement that the cuts aim to support “the stability and balance of oil markets” and will be reviewed monthly.