Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, said Sunday that it would extend cuts in oil production through June, noting that it was acting “in coordination with some” other states. Saudi allies including Kuwait and the United Arab Emirates said Sunday that they would also continue their reductions.
The decision to keep output cuts in place was expected and appears intended to bolster what might otherwise be weak oil prices. Some analysts forecast that the supply of oil will exceed demand in the first half of this year. Without continued cuts, prices might sink.
Saudi Arabia described the move as “precautionary.” Holding back oil production has “the aim of supporting the stability and balance of oil markets,” the kingdom said in a statement carried by the official Saudi Press Agency.
The Saudis said that the one million barrels a day that they began cutting in July “will be returned gradually, subject to market conditions.”
Giacomo Romeo, an analyst at the investment bank Jefferies, said on Sunday that the decision confirmed that the group was “not in a hurry to return” supplies.
The Saudis are selling much less oil than they are capable of producing, as countries outside OPEC, especially the United States and Guyana, increase their production. Russia, a member of OPEC Plus, has also managed to produce more oil than some analysts expected after its invasion of Ukraine in 2022.
Growth in demand for oil is also expected to be modest this year at about 1.5 million barrels a day or about 1.5 percent of world demand, according to Goldman Sachs.
Sunday’s announcement follows one the Saudis made in January that they were backing off a campaign to increase the amount of oil that Saudi Aramco, the state oil giant, can produce. Aramco had planned to be able to produce 13 million barrels a day, an increase of one million a day from what it can currently produce.
That decision in January confirmed that the kingdom “wants a tight oil market,” Goldman Sachs analysts said in a recent research note.
In addition, the Saudis seem to have decided, at least for now, that there is little point in spending billions of dollars to be able to pump at levels far higher than the current nine million barrels a day that they are producing.
Oil prices have been creeping up in recent weeks, partly over 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, was selling for about $83.55 at the end of last week, the highest level in about four months.
Analysts say that the price increases remain modest so far because there has been no actual disruption to oil production as a result of the fighting.
Instead, OPEC and its allies are voluntarily taking oil off the market. In November, several members of OPEC Plus, including the United Arab Emirates, Iraq and Kuwait, joined the Saudis in agreeing to new cuts.
The millions of barrels a day of output that these countries are keeping off the market could be used in an emergency to cover most potential disruptions, analysts say.