Saudi Arabia has told its national oil company Aramco to slash its crude oil production for June by an extra one million barrels per day (bpd), a Saudi energy ministry official said on Monday. The voluntary reduction is in addition to curbs the kingdom already committed to last month under an agreement struck between the Organisation of Petroleum Exporting Countries (OPEC) and its allies – a group known as OPEC .
“This brings the total production cut that will be carried out by the Kingdom, to around 4.8 million barrels per day, from the April production level,” the official said. “Therefore, the Kingdom’s production for June, after both its targeted and voluntary cuts, will be 7.492 million barrels per day.”
The announcement fell on the same day the kingdom’s finance ministry said it will triple its value added tax rate and suspend a cost-of-living allowance for state employees as Saudi Arabia seeks to cut costs during an historic oil price rout.
Global benchmark Brent crude was up seven cents, or 0.2 percent, at $31.04 a barrel by 12:42 GMT, while United States benchmark West Texas Intermediate crude rose 20 cents, or almost 1 percent to $24.94. Both contracts had fallen by more than $1 earlier in the session.
Oil prices have come under pressure as coronavirus restriction measures have closed borders, disrupted air travel, idled factories and sent consumers into lockdown, sorely curtailing crude demand. What began as a slow retreat in prices turned into a full blown crash in March after Saudi Arabia declared an oil price war in retaliation for Russia’s refusal to back deep output cuts.
The oil price war ended last month with an historic agreement between Saudi-led OPEC and allies led by Russia to reduce output by about 9.7 million bpd for May and June.
But even that record cut is not enough to offset the negative shock of the coronavirus pandemic which has reduced demand by about 30 million bpd.
The imbalance has seen crude storage near capacity on land and on the sea.
Last month, concerns over evaporating storage space lead to US oil prices turning negative for the first time in history as traders paid to have oil taken off their hands rather than take delivery of it and scramble for places to stash it.
Under the OPEC agreement, producers will slowly relax curbs after June, although reductions in supply will stay in place until April 2022. Saudi Arabia’s targeted oil production is 8.492 million bpd in May and June.
The ministry also directed Aramco to reduce its production in May from its quota level of 8.492 million bpd “in consent with its customers”, the official said.
“The Kingdom aims through this additional cut to encourage OPEC participants, as well as other producing countries, to comply with the production cuts they have committed to, and to provide additional voluntary cuts, in an effort to support the stability of global oil markets,” the Saudi official said.
Kuwait joined Saudi Arabia on Monday in announcing additional oil production cuts of 80,000 bpd to be implemented in June, state news agency KUNA reported, citing Oil Minister Khaled al-Fadhel. The cuts are also on top of the curbs stipulated under the OPEC deal.