Bloomberg: Russia is the big winner from OPEC+ output cuts

Russia is the big winner from OPEC+ production cutbacks.

Several of the group’s major members, led by Saudi Arabia, have been reducing output since May in a bid to boost prices, or “balance the market” in OPEC-speak, Bloomberg reports.

The desert kingdom went a step further in July, implementing an additional, unilateral cut of 1 million barrels a day. That has since been extended twice and may well be again in the near future.

Russia, which earlier promised curbs of its own in retaliation for Western sanctions and price caps on oil exports, belatedly joined the Saudis, reducing shipments in July.

The pullbacks have helped boost crude prices, although perhaps not by as much as the producers had hoped. Faltering Chinese growth is beginning to undermine some of the bullish forecasts for the rest of the year. Hence the extended Saudi cuts.

Make no mistake, the kingdom is bearing the burden. Since February, it has reduced crude production by 1.22 million barrels a day. That’s more than 2½ times the size of the reductions made by Moscow.

Back in February, when the Kremlin announced its plan to hold back some supply, Saudi production exceeded Russia’s by 500,000 barrels a day. By July, it was 250,000 a day below. And it looks set to stay there for a while.

Saudi Arabia’s growth slumped in the second quarter as the production curbs contributed to turning the country from being one of the fastest-expanding major economies to one of the slowest.

The budget, which was heading for a big deficit this year, was rescued by a massive dividend from state company Saudi Aramco.

Russia’s coffers, on the other hand, have seen rising inflows from higher prices, which affect per-barrel tax rates, and narrowing discounts for its crudes against international benchmarks. Oil and natural gas revenue rose last month for the first time this year.

For the country, the price increases have more than offset the lower production and export volumes, in stark contrast to the situation faced by Riyadh.

To be sure, the two nations have historically had different approaches. Saudi Arabia has embraced the role of swing producer, turning the taps up and down to dull excessive market swings. Managing output is a new innovation for Russia with its less centralized oil industry, and the policy has its detractors among the country’s top oil men.

But for President Vladimir Putin, whose invasion of Ukraine has destroyed Russia’s energy relationship with Europe, the partnership with OPEC is working well.