Saudi Arabia delivered what Russian Deputy Prime Minister Alexander Novak called "a New Year's gift" to the oil market with its surprise announcement that it will cut oil production by an extra 1 million barrels per day, blowing away expectations that the OPEC+ alliance would maintain its collective output ceiling.
The kingdom will hold its February and March crude production to 8.125 million b/d — well below its quota of 9.119 million b/d — to help bring down oil inventories that had bloated from the COVID-19 pandemic, Saudi Energy Minister Prince Abdulaziz bin Salman said Jan. 5 after two days of OPEC+ talks.
"We do that with the purpose of supporting our economy, the economies of our friends and OPEC+ countries, and for the betterment of the industry at all levels," he said in a post-meeting press conference.
The cut is unilateral, with no other countries following suit. It will more than offset modest increases granted to Russia and Kazakhstan after hard-won negotiations. Those two countries will be allowed to boost their output by a combined 75,000 b/d in February and another 75,000 b/d in March, with all other OPEC+ members holding their quotas steady from January.
The news juiced oil prices, with front-month Brent futures jumping more than 5% to $53.66 per barrel at 1:57 p.m. ET.
And it came as a pleasant shock to many OPEC+ members, who were left in the dark on Saudi Arabia's announcement until Prince Abdulaziz revealed the cut to reporters after the meeting.
Delegates said the prince had hinted that a unilateral cut might be coming, telling ministers that he had "a fantastic proposal in my pocket," but he had not said what the volume would be.
Novak, who had met with the prince in Riyadh on Dec. 19, 2020, was the only one privy to the plan, the prince said.
The deputy prime minister lauded Saudi Arabia's "great contribution," saying the kingdom "is playing a major role in ensuring a normal level of stocks on the market."
The commitment will drop the collective quotas of the 23-member OPEC+ alliance in February to 35.734 million b/d, an 8.129 million-b/d cut from November 2018 levels.
For March, the ceiling will edge up to 35.809 million b/d, an 8.044 million-b/d cut.
Prince Abdulaziz said the kingdom's goodwill move was also a "preemptive measure" in case global oil demand worsens from rising coronavirus cases.
"Attending to these things earlier will give much better room to maneuver later on," he said. "We are all hoping that these so-called lockdowns that have taken place recently will be reduced hopefully in the next month or so and the world economy will continue improving. We've tried to preempt daunting stock levels that we need to reduce."
Herman Wang, Rosemary Griffin and Aresu Eqbal are reporters with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.