OPEC experienced a significant decline in oil production in July, marking the largest drop in three years, according to a report by Bloomberg. The decrease in output can be attributed to Saudi Arabia’s decision to implement deeper cuts in order to support crude prices. The survey conducted by Bloomberg revealed that OPEC’s production decreased by 900,000 barrels per day (bpd) last month, averaging at 27.79 million bpd. This decline in production is the most substantial since 2020, when OPEC began reducing production in response to the Covid-19 lockdowns and reduced demand.
The survey also indicated that Saudi Arabia achieved the majority of its promised production cuts. In July, the country slashed its production to 9.15 million bpd due to disappointing economic data in China and concerns about a recession in the United States. Additionally, Nigeria and Libya recorded decreased outputs of 130,000 bpd and 50,000 bpd, respectively. Traders in the market anticipate that Saudi Arabia will announce an extension of these production cuts into September in the coming days.
Another key finding from the Bloomberg report is that Russia, a major crude producer and ally of OPEC, has witnessed a decline in shipments to a seven-month low of just under 3 million bpd, based on tanker-tracking data.
Last month, Saudi Arabia announced an extension of its voluntary crude output cut of 1 million bpd for an additional month, covering August. Simultaneously, Russia declared a reduction in exports by 500,000 bpd for August. Combined, these cuts will account for a 1.5% reduction in global oil supply.
Market conditions and the impact of these production cuts will be reviewed by key OPEC+ nations in an online meeting on August 4. The full OPEC+ alliance, consisting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, is scheduled to convene in late November.
Since global supplies have tightened, oil prices have seen a recovery, with Brent crude futures trading at $84.26 a barrel and US West Texas Intermediate (WTI) futures trading at over $80 per barrel on Wednesday. These prices represent a three-month high.
It is worth noting that OPEC+ initially agreed in October to reduce its output by approximately 2% of world demand from November 2022 until the end of 2023. Subsequently, the group implemented further production curbs in an attempt to stabilize prices.
In summary, OPEC experienced a significant decline in oil production in July, primarily driven by Saudi Arabia’s deeper cuts to support crude prices. This drop in production is the largest in three years. Additionally, Russia, a key OPEC ally, has also observed a decline in shipments. The OPEC+ alliance will conduct a review of market conditions online on August 4, while the full alliance is scheduled to meet in late November. As global supplies tighten, oil prices have rebounded and reached a three-month high.
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