The ongoing extra production cut by Saudi Arabia is intended to stabilize the oil market and prevent high volatility in times of uncertainty, not to "jack up" prices, Saudi Energy Minister Prince Abdulaziz bin Salman said this week in his first comments since the Kingdom extended the supply cuts until the end of the year.
"It's not about . . . jacking up prices, it's about making the decisions that are right when we have the data," the minister told the World Petroleum Congress in Calgary, Canada, as carried by the Financial Times.
Early this month, Saudi Arabia said it would extend its 1 million barrels per day (bpd) voluntary production cut through December. The move, which is on top of the Saudi share of around 500,000 bpd in the ongoing OPEC+ cuts, reinforces "the precautionary efforts made by OPEC Plus countries with the aim of supporting the stability and balance of oil markets," the Kingdom said.
Its energy minister, the most influential official among the OPEC+ producers, reiterated on Monday that the reason for the extra cut was "market stability," not attempts to drive oil prices higher with a tightening market.
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"We want to be proactive and cautious. We do not target prices, but rather reduce volatility," Saudi Gazette quoted Abdulaziz bin Salman as saying.
"The jury's still out" about the many uncertainties in the oil market, including China's oil demand, Europe's economy, and the interest rate hikes globally, the minister added, noting that the current forecasts of a large deficit in the fourth quarter may not materialize and he would believe it when he sees it.
"It's always better to go by my motto, which is, 'I believe it when I see it.' When reality comes around as it's been forecast, Hallelujah, we can produce more," the Saudi official said.
Despite Saudi Arabia's insistence that it is not "jacking up" oil prices, the market is already showing signs of tightening, and prices have shot up to a 10-month high of $95 a barrel Brent as both market participants and major forecasters see a large deficit for the rest of the year.
While Saudi Arabia deflects the blame for higher prices, the fact is that the Kingdom needed oil at higher levels than in the second quarter to balance its budget for 2023.
Back in early May, the IMF said that Saudi Arabia needed oil prices at $80.90 per barrel to balance its budget this year.
Brent averaged just above $75 a barrel in May and $74.84 in June, right before the Saudis began the unilateral 1-million-bpd production cut in July.
At current oil production levels of around 9 million bpd and the same spending on projects, the Kingdom's breakeven oil price rises to $95 a barrel, Bloomberg Economics estimated earlier this year.
In terms of breakeven prices, so far, so good for Saudi Arabia. Brent did hit $95 per barrel earlier this week and could make a run to $100, analysts say, although they note that a move in the triple digits is unlikely to be sustainable due to the demand destruction and inflation it could bring.
The Saudi cuts also prompted analysts and the International Energy Agency (IEA) to warn of a large deficit for the rest of the year.
"[F]rom September onwards, the loss of OPEC+ production, led by Saudi Arabia, will drive a significant supply shortfall through the fourth quarter," the IEA said last week in its closely-watched Oil Market Report for September.
Saudi Arabia's Abdulaziz bin Salman insists on "I believe it when I see it," and criticized the IEA for its longer-term demand forecasts, claiming the "beginning of the end of fossil fuels" this decade.
"They have moved from being a forecaster and assessor of the market to one practicing political advocacy," the Saudi minister said, referring to the IEA.
Meanwhile, rising oil prices reflect tight markets due to none other than the Saudi cuts, analysts say.
"The oil market will likely be tight throughout the winter and despite some potential fireworks from the Fed, crude just wants to head higher," Ed Moya, senior market analyst at OANDA, wrote in a Tuesday note.
"It looks like some hints of economic resilience has energy markets willing to tolerate $90 a barrel oil, which is translating into a rally to test the $100 a barrel level."
By Tsvetana Paraskova for Oilprice.com