Russia and Saudi Arabia to cut oil production and imports in August

US dollars and coins with oil pump on background

On Monday, Saudi Arabia and Russia made a surprise announcement of new steps to stabilize the oil market.

The members of the OPEC + alliance are not pleased with the price movements in the last few months.

Oil prices rose 2% upon hearing the news, yet all gains were erased by the close of the day.

Futures of oil are not being held onto by hedge funds in anticipation of a resurgence in demand.

On Monday, a source from Saudi Arabia's energy ministry announced that the voluntary cut in oil production by 1 million barrels per day (b/d) in July will be extended into August, according to the Saudi news agency SPA.

The source from the agency stated that this extra voluntary reduction is meant to bolster the safety precautions that OPEC+ is taking to maintain the equilibrium of the oil markets.

Alexander Novak, Deputy Prime Minister of the Russian Federation, declared that Russia would voluntarily reduce their oil exports by 500,000 barrels per day in August in order to stabilize the oil market.

The report did not specify which month is the basis for the decrease in exports. This could mean that the exported volumes are being redirected to the domestic market, where fuel prices have been steadily increasing in recent months.

In August, Algeria's energy ministry announced that the country had chosen to reduce its oil production by an additional 20,000 barrels per day (bpd), in addition to the 48,000 bpd cut that had been implemented in May.

The International Energy Agency (IEA) had previously predicted a shortfall in the global oil supply of over 2 million barrels per day (b/d) for the latter half of 2023. However, with the recent production cuts from Saudi Arabia and Russia, this deficit could be even greater.

Kept expects that the actions of the Russian Federation and Saudi Arabia to reduce exports and production will lead to an increase in oil prices to $80 per barrel and beyond.

Despite OPEC+ cuts, Brent crude dropped 13% in the first half of the year to around $75 a barrel. The Wall Street Journal (WSJ) reported that the oil market will not bring the desired price increase for Saudi Arabia.

Oilcapital reports that hedge funds are "dumping" oil due to the looming threat of a crisis. Traders are not expecting a rebound in oil demand, and net long positions on the three major oil contracts have dropped to their lowest level since 2013, when tracking of this indicator began.

At the start of the automobile season in the United States, gas station prices decreased due to the fall in oil prices. According to the Wall Street Journal, the average price of gasoline per gallon was around $3.54 before Independence Day, which is $1.30 lower than the same time last year.