LONDON (Bloomberg) –Saudi Arabia and Russia see signs that oil demand is recovering as countries around the world start to relax lockdowns imposed to fight the spread of the coronavirus outbreak.
The Saudi-Russia statement comes as oil traders and consultants notice an increase in oil demand, particularly in Asia, driven primarily by rising gasoline consumption as citizens emerging from lockdowns opt to drive rather than use public transport.
“We are also pleased with the recent signs of improvements in economic and market indicators, especially the growth in oil demand and the ease in concerns about storage limits as various countries around the globe begin to emerge from their stringent lockdowns,” Saudi Energy Minister Prince Abdulaziz bin Salman and his Russian counterpart Alexander Novak said Wednesday in a joint statement.
Riyadh and Moscow, which lead the OPEC+ alliance, said they were serious about mitigating the unprecedented collapse in oil consumption and prices via their production cuts. Only a month ago, the two countries were engaged in a destructive price war.
“Our two nations remain firmly committed to achieving the goal of market stability and expediting the re-balancing of the oil market,” they said in the statement. “We are confident that our partners within OPEC+ are fully aligned with our goals.”
Prince Abdulaziz and Novak issued their statement following a phone call in which they reviewed the market. The call took place two days after Saudi Arabia made a surprise announcement of a unilateral cut of 1 million barrels a day beyond its OPEC+ agreement. United Arab Emirates and Kuwait also announced further output curbs.
Novak said Russia welcomed the extra cuts from the trio. “These actions are clear evidence of the determined actions that are highly welcomed and needed to help expedite the re-balancing of the oil market,” the ministers said.
International benchmark Brent crude has risen about $10 a barrel from its April lows, trading at $30.15 a barrel as of 1:49 p.m. in London, on signs that the worst economic impacts of the pandemic are easing. The Organization of Petroleum Exporting Countries and its allies are also following through on their pledged cuts, which next month will add up to almost 10.9 million barrels a day.
The new Saudi output cuts, announced on Monday, would bring the kingdom’s oil production in June to just under 7.5 million barrels a day, its lowest in 18 years. That’s compared to an official target of 8.5 million barrels a day under the OPEC+ deal reached last month.
“We have to be ahead of the curve,” Prince Abdulaziz said in a phone interview on Monday. “The voluntary cuts will further expedite the re-balancing process.”
The cut is particularly symbolic as it brings Saudi production below 8 million barrels a day, long seen by many consultants and traders as a line that wouldn’t be crossed because of the impact it has on the kingdom’s oil revenue.
The OPEC+ alliance is scheduled to review the oil market in a virtual meeting June 9-10.