OPEC extends oil production cuts through June

Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, said on Sunday it would extend oil production cuts through June, noting it was acting “in coordination with some” other states. Saudi allies including Kuwait and the United Arab Emirates said Sunday they would also continue their cuts.

The decision to maintain production cuts was expected and appears intended to support otherwise weak oil prices. Some analysts predict that oil supply will exceed demand in the first half of this year. Without further cuts, prices could fall.

Saudi Arabia described the measure as a “precautionary measure.” Holding back oil production is “aimed at supporting the stability and balance of oil markets,” the kingdom said in a statement carried by the official Saudi Press Agency.

The Saudis said the one million barrels per day they started cutting in July “will be gradually returned depending on market conditions.”

Giacomo Romeo, an analyst at investment bank Jefferies, said on Sunday the decision confirmed the group was “in no rush to return” stock.

The Saudis are selling far less oil than they can produce as non-OPEC countries, especially the United States and Guyana, increase production. Russia, a member of OPEC Plus, has also managed to produce more oil than some analysts expected after invading Ukraine in 2022.

Oil demand growth this year is also expected to be modest, at about 1.5 million barrels per day, or about 1.5 percent of global demand, according to Goldman Sachs.

Sunday’s announcement follows the Saudis’ announcement in January that they were halting a campaign to increase the amount of oil that Saudi Aramco, the state oil giant, can produce. Aramco had planned to produce 13 million barrels per day, an increase of one million per day over what it can currently produce.

That January decision confirmed that the kingdom “wants a tight oil market,” Goldman Sachs analysts said in a recent research note.

Moreover, the Saudis appear to have decided, at least for now, that there is little point in spending billions of dollars to pump at levels much higher than the current nine million barrels per day they are producing.

Oil prices have been rising in recent weeks, partly on concerns that the war between Israel and Gaza will spill over into the oil-producing countries of the Middle East. Brent crude, the international benchmark, sold for about $83.55 late last week, the highest level in about four months.

Analysts say price increases so far remain modest because there has been no actual disruption to oil production due to the fighting.

Instead, OPEC and its allies voluntarily withdraw oil from the market. In November, several OPEC Plus members, including the United Arab Emirates, Iraq and Kuwait, joined the Saudis in agreeing to new cuts.

The millions of barrels per day of production these countries are keeping off the market could be used in an emergency to offset most potential disruptions, analysts say.