Saudi Arabia and Russia on Tuesday prolonged oil production cuts through the end of this year in a bid to drive market prices higher after remaining far below 2022 record levels.
What began in July and was originally scheduled to cease at the end of August, Saudi Arabia’s 1 million barrel-per-day cut — 10% of its output — will remain through year’s end and will be reviewed monthly on whether to be increased or decreased, according to the state-owned Saudi Press Agency.
The OPEC oil cartel leader said the decision was meant to provide “stability and balance of oil markets.”
Russia, a member of OPEC+, stated an identical timeline and reason for its reduction of exports by 300,000 barrels per day. Russia was already slashing exports by 500,000 barrels per day — roughly 5% of its production — in addition to dropping total output by 500,000 barrels a day through 2024.
Global oil markets immediately responded by ticking upward around 1% to just shy of $87 per barrel for U.S. benchmark West Texas Intermediate crude and approaching $90 a barrel for global benchmark Brent crude. WTI was just over $81 a month ago and Brent at $85.
The average for a gallon of regular gas was $3.81 as of Tuesday, according to AAA, and has held steady the past month.
Another factor that could keep gas prices elevated — or send them even higher— is an active hurricane season. A single major storm could derail refineries or other aspects of domestic production.
But with peak summer travel months in the rearview mirror and cheaper winter-blend gasoline preparing to come online later this month, drivers could see relief at the pump.
Russia is the second largest oil exporter in the world, behind Saudi Arabia. While the U.S. and other Western countries no longer import Russian oil over its war against Ukraine, production cuts can send ripple effects across global markets.
Russia is an OPEC+ member, which includes 13-member OPEC and other allies like Russia, Azerbaijan and Mexico. The 23 countries that comprise the two oil cartels account for roughly 40% of the globe’s daily oil production.
With the cuts, Saudi Arabia will be producing 9 million barrels per day and Russia around 9.5 million.
By comparison, the U.S. produced an average of 12.8 million barrels per day in June, the most recent data available from the U.S. Energy Information Administration. Domestic output is on pace to break pre-pandemic records set in 2019 by the end of this year.
The U.S. consumed an average of 20 million barrels of oil per day in 2022 compared with global consumption of 100 million barrels.