Oil producers again promise to cut production and exports: will this raise prices

Alexey Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance, commented to Forbes on the prospects for increasing oil prices after Russia's decision to cut oil exports by 500,000 barrels per day.

On Monday, July 3, Saudi Arabia announced that it would extend into August a voluntary cut in oil production, which began this month, so that its daily volume was about 9 million barrels. On the same day, Deputy Prime Minister Alexander Novak announced that Russia would cut oil supplies by 500,000 bpd. Saudi Arabia and Russia were also supported by Algeria, which announced a reduction in production in August by 20,000 barrels per day, to 0.94 million barrels per day.

The decisions of Russia and Saudi Arabia are primarily aimed not at raising prices in the short term, but at preventing them from falling, Alexey Gromov notes.

“The situation in the world in terms of demand and macroeconomics looks very serious: we see an increase in interest rates in the eurozone and in the United States, as well as a decrease in economic activity in the eurozone, which continues for the second quarter in a row, which indicates the beginning of a recession,” Gromov says. Added to this is weak economic activity in China. Everything points to the fact that the demand for oil will be obviously lower than previously expected. There is a risk that the world will enter a phase of economic crisis at the end of this year. How severe it will be remains to be seen, but nevertheless, this risk is very significant, which is reflected in oil prices.”

Saudi Arabia is one of the few participants in the OPEC+ agreement that actually cuts production, Gromov adds. Russia, on the other hand, closed the data on production and exports, which is the reason for speculation about how much the country really reduces them. Russia in recent months, Gromov notes, has been reducing production, but at the same time, by reducing oil refining and pipeline exports to Europe, as well as optimizing reserves within the country, it has increased sea exports. The more oil prices fall, the less profitable it will become.

“Therefore, I think that on the part of Russia we are showing a more significant step for the market by reducing exports,” Gromov sums up. “This situation can be tracked at the international level through the movement of tankers, pipeline deliveries, so somehow hiding this data, as in the case of production, will not work.”