Tsarist Russia Joins Forces To Reduce Production, But Demand Far Exceeds Expectations

After a half-year slump, oil prices surged on the back of tighter supply and rebounding demand. Brent crude, the international crude benchmark, has risen about 20% since July 1, while the price of diesel fuel at the Port of New York, an important fuel that keeps the global economy running, has soared by a third.

The two major oil-producing countries, Saudi Arabia and Russia, have made efforts to voluntarily reduce production to further restrict production capacity. At the same time, crude oil consumption has surged, resulting in a serious deficit in crude oil supply and demand. On Tuesday, Saudi Arabia and Russia extended their voluntary production cuts to the end of December this year. Saudi Arabia voluntarily cut production by 1 million barrels per day, and Russia voluntarily cut production by 300,000 barrels per day, prompting oil prices to soar to more than $90 per barrel, the lowest level in November last year. for the first time since.

Specifically, Saudi Arabia has cut crude oil production by an average of 500,000 barrels per day since May this year, and has voluntarily reduced crude oil production by an additional 1 million barrels per day since July. After two production cuts, Saudi Arabia's average daily crude oil production has dropped to 9 million barrels. Russia's additional production cuts are less than one-third the size of Saudi Arabia's and apply to exports rather than production.

At the same time, crude oil consumption demand has surged. According to data from the International Energy Agency (IEA), global oil usage reached a record 103 million barrels per day in June. The rebound in China's oil demand has pushed overall demand higher.

Energy Aspects Ltd analyst Amrita Sen said in a note that Western perceptions of Asia, especially China, are far from reality, with both end-user demand and refinery operations strong. Against the background of tightening supply and rebounding demand, the gap between supply and demand has further widened. Rystad Energy A/S data shows that the supply gap in the fourth quarter was approximately 2.7 million barrels per day, which means that global oil prices will rise further. The market had hoped that seasonal changes would ease tensions in the oil market, with the IEA forecasting a supply deficit of just over 1 million barrels per day in the fourth quarter, half of the expected shortfall from July to September. However, a joint Saudi-Russian statement on Tuesday significantly changed that outlook, with the projected deficit in the final quarter as severe as in the summer.