On Thursday, July 13, the International Energy Agency (IEA) reported that Saudi Arabia's crude oil output will fall below that of Russia due to the impact of voluntary production cuts. This will allow Russia to reclaim the throne of the world's largest oil producer after two years.
Last month, Saudi Arabia announced it would voluntarily reduce its oil production by 1 million barrels per day (bpd) this month. This decision lowered the country's daily production to a two-year low of 9 million bpd, diminishing Saudi's share of production within the organization. The kingdom hopes to bolster low oil prices that have reduced its income, subsequently extending this voluntary production cut into August. The cuts primarily exclude other OPEC+ members, while concurrent production increases by non-OPEC+ oil-producing countries like the United States have dampened the effect of Saudi's production cuts on oil prices.
However, the IEA states that the increase in oil production from countries like the U.S. appears to be nearing its end, and Russia's crude oil production seems to be declining, albeit at a slower pace.
Market analysts believe that Saudi Energy Minister Prince Abdulaziz bin Salman made the unilateral decision to cut production, even at the cost of losing market share, to boost oil prices. The kingdom needs an oil price of around $80 per barrel to sustain its large budget and fund its economic transformation projects.
Russia also pledged to cut oil production, but the implementation of measures has been slow. The IEA suggests this trend may be changing, as Russia's daily oil exports fell by 600,000 barrels to 7.3 million bpd in June, marking the lowest level since March 2021. However, Russia may maintain a stable production level to meet domestic demand.
Before Saudi Arabia's unilateral decision to cut production, the several production cuts unanimously adopted by OPEC+ hardly had any significant impact on oil prices.
Since the implementation of Saudi Arabia's unilateral production cuts, the U.S. oil production has increased by 610,000 bpd, while OPEC member Iran seized this opportunity to increase its production by 530,000 bpd, the IEA reported.
Analysts suggest that with supply growth possibly peaking, Saudi's production cuts and Russia's decrease in oil exports now seem to be producing the desired effect: tightening the market and raising oil prices.
Brent crude oil rose above $80 per barrel for the first time since the end of April in recent days.
The IEA indicates that due to supply growth lagging behind demand growth, this month's OPEC+ crude oil demand will exceed the organization's supply by 2 million bpd, a gap expected to widen to 3 million bpd in August. For the entire third quarter, the average gap is projected to be 2 million bpd. At the same time, oil reserves are declining, and there is limited spare crude oil to meet the demand.
The agency predicts oil demand will increase by 2.2 million bpd this year, reaching 102.1 million bpd, and further increase by 1.1 million bpd next year. The supply is expected to grow by 1.6 million bpd to 101.5 million bpd this year and increase by 1.2 million bpd next year.
However, in its monthly market report published on Thursday, OPEC forecasts that next year's oil demand will grow by 2.2 million bpd daily, a number significantly higher than the IEA's expected increase of 1.1 million bpd.
Last month, the IEA predicted that oil demand would peak this decade, primarily due to the proliferation of electric vehicles. However, OPEC believes that due to robust demand in Asia, oil demand will remain strong for several years to come.
On Thursday, July 13, the WTI crude oil price briefly surged due to the closure of Libya's major oil field, Sharara, because of protest activities. The price reached as high as $76.78, with an overall daily increase of more than 1.3%. Brent crude oil also rose briefly, increasing more than 1.2% to over $81.
