Saudis make deeper oil cut to steady price

DUBAI－Saudi Arabia's Energy Ministry on Monday told the national oil company Aramco to further reduce crude oil production for June as low prices strain the kingdom's budget and global demand remains weak due to the pandemic.

The announcement to add 1 million barrels a day－equal to 1 percent of global supply－to the previously announced cuts follows a phone call last week between US President Donald Trump and Saudi Arabia's King Salman.

Trump had worked last month to persuade Saudi Arabia, fellow OPEC members and Russia－a group known as OPEC+－to cut oil output by 9.7 million barrels per day for May and June after a collapse in crude prices put heavy pressure on US producers.

On Friday, the two men discussed oil and defense amid news Washington would withdraw two Patriot anti-missile batteries from Saudi Arabia that have been a defense against Iran. Washington said the withdrawal was not linked to oil.

Saudi Energy Minister Prince Abdulaziz said the deeper oil output cuts in June are designed to expedite draining a global supply glut and rebalancing the oil market.

He said the kingdom wants to be "ahead of the curve" and he sees signs of demand picking up as countries move to ease restrictions on movements imposed over the past months to stop the spread of the novel coronavirus.

"We want to expedite the process of returning back to normal," he said in a telephone interview.

A Saudi Energy Ministry official said on Monday that new cuts would bring total Saudi production down by around 4.8 million barrels a day in June versus April.

"Therefore, the kingdom's production for June, after both its targeted and voluntary cuts, will be 7.492 million barrels per day," he said.

The official also revealed that Aramco has been directed to reduce production in May, from the target level of 8.492 million barrels a day, after customers' consent.

Stabilization of oil market

He justified the additional cut as a means to encourage OPEC+ members and other oil producers to comply with their production cuts commitment and to provide additional voluntary cuts, in order to stabilize global oil markets.

Kuwait joined Saudi Arabia in announcing fresh oil production cuts of 80,000 barrels a day in June, on top of those already agreed under the OPEC+ plan. The United Arab Emirates also said it would reduce output in June, by a further 100,000 barrels a day.

Christyan Malek, managing director of JPMorgan, said he expected Saudi Arabia to further deepen cuts, possibly by another 1-1.5 million barrels a day, under pressure from Trump and its own fiscal pressures at home.

Asked whether the deeper cuts by Saudi Arabia would continue beyond June, Prince Abdulaziz declined to comment, but struck an optimistic note on the future of the oil market.

"If things are continuously hopefully improving, we will scale back (the cuts) as we have in the (OPEC+) agreement," he said, adding that he would be "more than surprised" if by time OPEC+ meets next in June "the picture may not be more brighter".

Xinhua - Agencies