Saudi Arabia will voluntarily deepen oil output cuts from June as low oil prices are causing huge pain to the kingdom's budget and global demand remains weak due to lockdowns to contain the coronavirus pandemic.
The announcement by the kingdom to add 1 million barrels per day (bpd) – equal to 1% of global supply – to the previously announced cuts follows last week's phone conversation 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 after a collapse in crude prices put heavy pressure on US producers.
READ: OPEC oil output near record high in April
Last Friday, the two men discussed oil and defence amid news Washington would withdraw two Patriot anti-missile batteries from Saudi Arabia that have been a defence against Iran. Washington said the withdrawal was not linked to oil.
Saudi Energy Minister Prince Abdulaziz told Reuters 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 coronavirus epidemic.
READ: OPEC chief expects oil price to reach $40 a barrel in second half of 2020
"We want to expedite the process of returning back to normal," he said in a telephone interview.
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. The 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. The United Arab Emirates also said it would reduce another 100,000 bpd in June.
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.