Saudi Arabia will cut its oil production by a further 1m barrels a day next month, as the kingdom seeks to provide further support to crude prices battered by the effects of coronavirus.
The energy ministry said on Monday that output would fall to 7.5m b/d in June, and the government had asked Saudi Aramco, the state oil company, to begin cutting May production below the 8.5m b/d it had agreed with global producers.
Oil demand collapsed this year when economies went into lockdown to slow the spread of the disease. In a bid to stop sliding prices, the Opec group of oil-producing countries agreed with Russia in April to collective cuts of 9.7m b/d, in what were the biggest-ever curbs that were also backed by the US.
But the announced supply reductions — taking effect this month — have failed to significantly bolster crude prices, which are still down by more than half since January, having hit 18-year lows in recent weeks.
The price of Brent crude, the international oil benchmark, increased by 1 per cent after the announcement to more than $31 a barrel, before giving up some of those gains.
At this level, producer economies — including Saudi Arabia — and oil companies across the world are under intense financial pressure, with officials and executives forced into cash-conservation mode.
The energy ministry said in a statement the kingdom hoped to “encourage” other members of the so-called Opec+ group to comply with the agreed curbs and make additional voluntary cuts of their own.
Oil stockpiles have swelled as global oil consumption fell by a third in response to governments’ virus containment measures. “The size of the supply-demand imbalance leaves little room for optimism,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.
On Friday, Saudi Arabia’s King Salman held a telephone call with US President Donald Trump, who had demanded the kingdom end its price war that has devastated large parts of America’s shale oil industry.
“The two leaders agreed on the importance of stability in global energy markets,” a White House spokesperson said.
Saudi Arabia had drastically cut prices and flooded the market with crude after an Opec+ meeting of ministers in March failed to agree on oil policy in response to the virus’s spread.
The kingdom’s oil minister, Abdulaziz bin Salman, told the Financial Times in an interview last month the price war was an “unwelcome departure” from a strategy of collective production cuts, but said Saudi Arabia had to act to capture some revenue as oil prices fell.