Oil Market Surprises: Saudi and Russian Supply Cuts Extended

The Commodities Feed: Saudi and Russian oil cuts

The oil market had largely expected the Saudis and Russians to extend supply cuts. What was unexpected was extending these cuts through until year-end.

 

Energy – Saudi extends cuts

The oil market moved higher yesterday, with ICE Brent settling above US$90/bbl for the first time since November. Saudi and Russian supply cuts were the catalyst for the move higher.

Saudi Arabia announced that it would extend its voluntary supply cut of 1MMbbls/d until the end of the year. Similarly, Russia said that it would extend its export cut of 300Mbbls/d through to year-end. While it was largely expected that these voluntary cuts would be extended, expectations were for a one-month extension rather than three months. This does leave the market with a deeper than expected deficit over the fourth quarter of 2023, which should continue to support prices. For now, we are reluctant to revise higher our price forecasts on the back of this extension, as demand concerns continue to linger and Iranian supply is rising. Iran is producing close to 3.1MMbbls/d and plans to pump around 3.4MMbbls/d. Meanwhile, our oil balance shows a small surplus in the first quarter of 2024, which should limit prices moving significantly higher. We continue to forecast that Brent will average US$92/bbl over the fourth quarter of this year.

Looking further ahead, we would not rule out a further extension of these cuts (fully or partially) into early next year, given that our balance sheet shows that the oil market will be in a small surplus over the first quarter of next year. Any cuts will obviously depend on where oil is trading towards the end of the year and whether demand worries are still present.