- OPEC+ met on Sunday to discuss its outlook for oil production among member countries.
- Saudi Arabia announced a 1 million barrel per day production cut in July.
Saudi Arabia could extend its July production cuts beyond 1 million barrels per day if Brent futures fell below $70/ barrel, according to one energy analyst.
"We think Saudi Arabia will look to deepen production cuts if Brent futures sustainably drop below $70/barrel," Vivek Dhar, the director of mining and energy commodities research at Commonwealth Bank of Australia, wrote in a Monday note seen by Insider.
"If in a month's time prices drop below that level, Saudi Arabia is likely to deepen cuts in our view for August," Dhar told Insider.
The analyst added in the note that Saudi Arabia could extend July's production cuts if Brent futures remain stuck between $70‑75/barrel.
After a pivotal meeting of the oil producers on Sunday, Saudi energy minister Prince Abdulaziz bin Salman announced that the Kingdom plans to start cutting oil production by 1 million barrels per day, starting in July.
This means the Kingdom's oil production will drop to 9 million barrels per day from around 10 million barrels in May, per CNBC.
The energy minister called the reduction a "Saudi lollipop" — a kind of sweetener for the OPEC+, or the Organization of the Petroleum Exporting Countries and its allies — at a news conference following the meeting.
He said at the news conference the cut could be extended and that the group "will do whatever is necessary to bring stability to this market," per The Associated Press.
"The move of OPEC+ is within our expectations while the kingdom has made good its intention to shore up the market," Kang Wu, the head of global demand and Asia Analytics at S&P Global Commodity Insights, told Insider.
Oil prices rose by 2% on Monday after the production cut was announced.
In early Monday trade, Brent futures were up 2.4% at $78 a barrel, while U.S. West Texas Intermediate futures rose 2.5% to $73.53 per barrel. Brent futures shed some gains and were trading at just under $78 per barrel at last check. The WTI had risen almost 5% early on Monday before paring gains, per Bloomberg.
Dhar, however, expects Brent futures to rise to $85/barrel by the fourth quarter of 2023 "even with a tepid demand recovery in China factored in."
"With Saudi Arabia protecting oil prices from sliding too low by cutting production, we think oil markets are now more prone to a shortfall later this year," he wrote in the note.
June 05 2023, 5:14 a.m. ET: This story has been updated to include the latest prices of Brent futures.