On Monday, a Saudi energy ministry official said new cuts would bring total Saudi production down by around 4.8 million bpd in June versus April. Output would then stand at 7.492 million bpd, the lowest in almost two decades.
"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 in announcing fresh oil production cuts of 80,000 bpd in June, on top of those already agreed under the OPEC+ plan. Oil prices rose on the announcements, with the benchmark Brent and WTI futures paring earlier loses to trade at $31 a barrel and $25.12 a barrel respectively.
Global oil demand has slumped by about 30% as the coronavirus pandemic has curtailed travel and economic activity across the world, building up inventories globally.
OPEC+ agreed last month to reduce output by 9.7 million bpd for May and June, a record production cut. Producers will slowly relax curbs after June, although reductions in supply will stay in place until April 2022.
Christyan Malek, managing director at J.P. Morgan, said he expected Saudi Arabia to further deepen cuts, possibly by another 1.0-1.5 million bpd, under pressure from Trump and its own fiscal pressures at home.
On Monday, Saudi Arabia said it would triple value added tax and suspend a cost of living allowance for state workers.
"It is a transitory cut to help soften the demand hit in the next few months. It also does appear to be a politically charged cut to meet a deal with Trump," Malek said. "The U.S. energy industry is looking for a bailout from Saudi Arabia."
The kingdom was in turn looking for U.S. investments and the removal of anti-OPEC legislation, Malek said. "But fast forward 12-18 months and Saudi Arabia will have a bigger market share while oil majors and shale will be severely hit," he added.