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Saudi Arabia announced an extra oil-production cut to slash output to the lowest in 18 years as it tries to accelerate the recovery from an energy crisis that’s devastated the kingdom’s finances.
Just hours after unveiling a slew of austerity measures, Saudi Arabia said it was taking the unilateral step of cutting oil output by another 1 million barrels a day on top of what it already agreed with OPEC allies. Oil prices rose.
“We have to be ahead of the curve,” Saudi Oil Minister Prince Abdulaziz bin Salman told Bloomberg News on a phone interview on Monday. “The voluntary cuts will further expedite the re-balancing process.”
It’s a sign of the urgency felt by Riyadh to stabilize the oil market as rock-bottom prices forced it toimpose dramatic spending cuts, including allowances for millions of public employees, and to triple its value-added tax.
Kuwait also announcedadditional cuts.
Riyadh aims to pump just under 7.5 million barrels a day in June, compared with an official target under the most recent OPEC+ agreement of just under 8.5 million a day. If Saudi Arabia makes good on its pledge, its production will drop to the lowest since mid-2002, according to data compiled by Bloomberg.
The cut is particularly symbolic as it brings Saudi production below 8 million barrels a day, long seen by many consultants and traders as a red line the kingdom wouldn’t cross.
From the high water mark level of April, when Riyadh claimed oil output of 12.3 million barrels a day, Saudi Arabia has now reduced production by about 4.8 million barrels a day.
The Saudi cuts come days after U.S. President Donald Trump spoke on the phone with King Salman. The White House said that both leaders had agreed “on the importance of stability in global energy markets.”
Trump has repeatedly put pressure on Saudi Arabia, Russia and other OPEC+ countries to cut output in an effort to save the American oil industry.
Signs of Demand
Prince Abdulaziz said that he was observing some signs of increased oil demand, particularly for gasoline, as citizens emerging from lockdowns opted to drive alone in their cars, rather than ride the subway or trains.
“People feel better to use their cars than public transportation,” he said.
On top of targeting much lower output in June, Riyadh also asked state-owned oil producer Saudi Aramco to reduce its production in May “in consent with its customers.” Under the most recent OPEC+ deal, Saudi Arabia was targeting production of 8.492 million barrels a day for both May and June. While Aramco may be able to reduce production, any cuts are likely to be relatively small, as the state-owned oil company agrees on shipment levels with refineries weeks in advance.
Prince Abdulaziz, who said that the worst-case demand scenarios hadn’t materialized, encouraged other producers to join with their own voluntary cuts. “We are acting as an example to other producers without imposing,” he said. “We should be proactive; taking the lead,” he added.
Oil prices immediately rose after the announcement on Monday, before paring gains. WTI, the U.S. benchmark, traded little changed at $25.22 a barrel.
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