Saudi Arabia's Expansion of Production Cuts Has Taken Effect, OPEC's July Output Posted Largest Drop Since 2020

OPEC's crude output fell by the most in three years as Saudi Arabia imposed deeper cuts to support global markets. OPEC production fell by 900,000 bpd to an average of 27.79 million bpd last month, according to a survey. It was the biggest drop since the group slashed supply during the worst of the 2020 coronavirus pandemic.

Saudi Arabia has all but followed through on its pledge to cut output by an additional 1 million barrels per day in a bid to boost prices amid fears of a US recession. Oil prices have recovered as global supplies tighten, with Brent recently hitting a three-month high above $85 a barrel.

Traders expect Saudi Arabia to announce in the coming days that it will extend output cuts until September, deepening signs of supply shortages in the market. While oil consumers worry that OPEC's policies could stoke inflation, major producers still need higher oil prices to pay for government spending.

Saudi Arabia's production averaged 9.15 million bpd in July, the survey showed. Nigeria's crude supply also fell by 130,000 bpd to 1.26 million bpd in July, as a leak at the Forcados crude terminal thwarted the country's plans to boost output. Libyan oil production also suffered a setback, falling by 50,000 bpd to 1.1 million bpd after protests temporarily halted production at its Sharara field.

Saudi Arabia has also received some help in supporting the market from Russia, which is part of a wider member of the group known as OPEC+. Russia has ignored pledges to cut supply for months as it focused on maximizing revenue to secure funds, but tanker tracking data shows Russia is now cutting exports. Oil shipments have fallen to a seven-month low of just under 3 million barrels per day.