Saudi Arabia, UAE and Kuwait announce further cuts to oil production to stabilise the price of the barrel
Saudi Arabia, the United Arab Emirates and Kuwait want to pull their weight a little more to stabilise oil prices. That's why they announced on Monday further voluntary cuts to their oil production in June, adding to the OPEC+ agreement to reduce pumping by 9.7 million barrels. The desert kingdom is the strongest bet and will withdraw up to a million barrels in addition to what has already been agreed. In the case of Kuwait, the cut will reach 80,000 barrels per day, which is in addition to the 641,000 barrels that had already been agreed to stop production. The United Arab Emirates is committed to withdrawing up to 100,000 barrels. With this new cut, Emirate industry has stopped using 44% of its production capacity.
Stock exchanges have responded positively to the announcement of a new cut and the West Texas Intermediate (WTI) barrel advanced to 0.53% at the opening of the trading floor on Monday, although it ended the session in negative again. Crude oil also rose slightly on Tuesday morning. "The movement of the Gulf countries is throwing a very positive indicator to the markets, which perceive that these cuts will alleviate the excess supply. Although these new cuts will not be enough to rebalance it, they will help to manage the over-supply in June," explains Bjornar Tonhaugen, chief oil market analyst at consulting firm Rystad Energy, in a communication to clients.
The global economic crunch caused by the COVID-19 pandemic has plummeted demand and multiplied oil storage problems. These circumstances, in addition to the disagreement between Russia and Saudi Arabia in early April, have led to unprecedented volatility in the market for the commodity.
"In support of the efforts led by the Kingdom of Saudi Arabia to restore stability to the energy markets, the Emirates is committed to a further cut in oil production," Emirate Oil Minister Suhail Al-Mazroui said on his Twitter account. Kuwaiti Oil Minister Khaled al Fadil has applauded the "joint coordination" with the Saudi authorities. Al Fadil stressed that Kuwait supports Saudi Arabia's efforts to recover the "stability and balance" of the oil markets.
The Saudi government has also told Aramco that it is seeking to reduce its oil production from this May in order to support the stability of world oil markets. "Total production for June, including the drop in production, will be 7,492 million barrels a day," an official from the Ministry of Energy told the official Saudi news agency (SPA). "With this new cut, the kingdom aims to encourage OPEC+ participants, as well as other producing countries, to comply with the cuts to which they have committed and to provide additional voluntary cuts," the energy ministry source said.
"The additional unilateral cuts by Saudi Arabia, the United Arab Emirates and Kuwait are not surprising and could reflect two things: an expectation of non-compliance by other OPEC+ members (such as Iraq, etc.) or a reflection of continued supply-side overload due to the risk of a lackluster demand recovery," says Paola Rodriguez Masiu, oil market analyst at consulting firm Rystad Energy, in a report for clients.