Saudi Oil Cuts to Lead to Significant Supply Shortfall in 2023, IEA Says

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Saudi Arabia’s decision to extend cuts to crude oil output until the end of the year is likely to lead to a significant supply shortfall for the rest of the year, keeping prices higher at the pump, according to the International Energy Agency. In its monthly report, the IEA said that cuts from Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries have led to 2.5 million barrels a day being removed from the market since January, though this has mostly been mitigated by record supply coming from the U.S.

and Brazil, with non-OPEC supply up 1.9 million barrels a day. However, with Saudi production and also Russian exports being cut until the end of the year, the market is now likely to see a significant shortfall of about 1.1 million barrels a day in the fourth quarter, something which is likely to support prices, the IEA said Wednesday.

The unwinding of the cuts in 2024 should bring the market back to surplus but a lack of oil inventories could mean high volatility in the market, the Paris-based agency added. “The Saudi-Russian alliance is proving a formidable challenge for oil markets," the IEA said, noting that the cuts to supply from both nations of about 1.3 million barrels a day led to a spike in prices, with Brent Crude, the international benchmark for crude oil, rising above $90 a barrel and prices pushing to a 10-month high.

The cuts come on top of expected further demand growth, with oil demand set to rise by 2.2 million barrels a day in 2023, averaging 101.8 million barrels a day, according to the IEA. This demand growth is likely to temper next year to 1 million barrels a day, averaging 102.8 million barrels a day, the IEA said.