What do Saudi Arabia and Russia gain by extending oil production cuts? The US President is trying to do this

The recent extension of oil production cuts by Saudi Arabia and Russia is aimed at maintaining stability and balance in the oil market. But how will this decision impact the US and the global oil market?

Một kho chứa dầu của ADNOC tại thủ đô Abu Dhabi. Ảnh: AFP.

Following Saudi Arabia and Russia's decision to extend oil production cuts, benchmark Brent crude oil prices rose above $90 per barrel, their highest level since November 2022. (Source: AFP)

On September 5th, Saudi Arabia extended its voluntary crude oil production cuts of 1 million barrels per day until the end of this year. These cuts will bring Saudi Arabia's crude oil output to nearly 9 million barrels per day in October, November, and December, with the cuts being reviewed monthly.

Russia, the world's second-largest oil exporter, also announced it would extend its voluntary decision to reduce oil exports by 300,000 barrels per day until the end of 2023.

On the Russian side, Deputy Prime Minister Aleksandr Novak stated that the extension of voluntary oil supply cuts aims to strengthen the precautionary measures taken by the Organization of Petroleum Exporting Countries (OPEC) and its partners (OPEC+) to maintain stability and balance in the oil market.

Following that announcement, benchmark Brent crude oil prices rose above $90 per barrel, the highest level since November 2022. Prior to that, crude oil prices for July trading had touched $80 per barrel.

Commenting on the decision by the two world oil giants, Bob McNally, president of Washington-based Rapidan Energy Corporation, said that Saudi Arabia and Russia had "demonstrated solidarity and determination" in managing oil prices that are at risk of rising sharply.

Justin Alexander, director of the consulting firm Khalij Economics, said that Saudi Arabia's decision to cut additional production appears to have fueled soaring prices and tighter supply in the fourth quarter of 2023.

He emphasized: "However, these efforts come at a price."

The director of the consulting firm Khalij Economics pointed out that Saudi Arabia's current production is around 9 million barrels per day, significantly lower than its capacity of 12 million barrels per day – the level before the cuts.

In early August, Saudi Arabia's oil giant Aramco reported second-quarter 2023 profits of $30.08 billion, down 38% from the same period in 2022 – when oil prices soared due to the Russia-Ukraine conflict.

The company stated that this decline in profits "primarily reflects the impact of falling crude oil prices and weakening profit margins on chemical and refined products."

Goldman Sachs believes that oil prices could rise sharply next year if the two countries do not lift their drastic supply cuts. The bank forecasts Brent crude to reach $86 in December and $93 by the end of 2024.

Currently, Goldman Sachs sees “two upside risks” to the global oil market.

First, Saudi Arabia's oil supply will decrease by 500,000 barrels per day compared to previous forecasts. "That alone will cause the price of oil per barrel to increase by an additional $2," the bank emphasized.

Secondly, the bank projected that OPEC+ would maintain oil production cuts until the end of 2024. At that point, Brent crude oil prices could rise to $107 per barrel by December 2024.

Goldman Sachs emphasized: "OPEC+'s strategy could backfire."

While higher oil prices would help Saudi Arabia balance its budget and Russia increase revenue, if oil prices reach triple digits, US shale producers would increase supply to lower prices. Additionally, higher "black gold" prices could encourage greater investment in clean energy.

According to the bank, another reason why OPEC+ might not want oil prices at $100 is the " political importance of US gasoline prices." US presidents don't want to see gasoline prices skyrocket, especially before an election.

US National Security Advisor Jake Sullivan said that President Joe Biden is focused on "trying to do everything in his 'toolkit' to lower gasoline prices for American consumers."

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