Saudi Arabia and Russia agreed on Tuesday to extend voluntary oil output cuts until the end of this year, cutting 1.3 million barrels of crude from the global market and boosting energy prices.
The twin announcements from Riyadh and Moscow pushed benchmark Brent oil above $90 a barrel in afternoon trading on Tuesday, a price not seen in the market since November.
The countries' moves will likely raise costs for motorists at the gas pumps and put new strain on Saudi Arabia's relationship with the United States. President Joe Biden last year warned the kingdom that there would be unspecified “consequences” from cooperating with Russia on the cuts as Moscow wages war against Ukraine.
The Saudi statement, carried by the state-run Saudi Press Agency, said the country would continue to monitor the market and could take further action if necessary.
“This additional voluntary cut comes to strengthen the precautionary efforts made by OPEC+ countries to support the stability and balance of oil markets,” the Saudi Press Agency said, citing an unnamed energy ministry official.
Russia's state-run Tass news agency quoted Alexander Novak, Russia's deputy prime minister and former energy minister, as saying Moscow would continue cutting 300,000 barrels a day.
The decision “aims to strengthen the preventive measures taken by OPEC+ countries in order to maintain the stability and balance of oil markets,” Novak said.
Benchmark Brent crude oil traded at $90 a barrel on Tuesday immediately after the announcement. Brent has fluctuated widely between $75 and $85 a barrel since last October.
There was no immediate reaction in Washington, although US lawmakers criticized OPEC, Saudi Arabia and Russia for their earlier production decisions.
The average gallon of regular unleaded gasoline in the U.S. is $3.81, according to AAA. That's up just a few cents from this time last year, after the typically higher Labor Day weekend prices.
Saudi Arabia's cut, which began in July, comes as other OPEC+ producers agreed to extend previous output cuts into next year.
A series of output cuts last year failed to significantly boost prices amid weakened demand from China and tighter monetary policy aimed at fighting inflation. But with international travel returning to near pre-pandemic levels, demand for oil will likely continue to rise.
The Saudis are particularly keen to boost oil prices in order to fund Vision 2030, an ambitious plan to overhaul the kingdom's economy, reduce its dependence on oil and create jobs for a new population.
The plan includes several massive infrastructure projects, including the construction of a $500 billion futuristic city called Neom.
But Saudi Arabia also needs to manage its relationship with Washington. Biden campaigned on a promise to make powerful Crown Prince Mohammed bin Salman a “pariah” over the 2018 killing of Washington Post columnist Jamal Khashoggi.
In recent months, tensions have eased slightly as the Biden administration pursued a deal with Riyadh to diplomatically recognize Israel.
But those talks include Saudi Arabia's push for a nuclear cooperation deal that includes America allowing it to enrich uranium in the kingdom — something that worries nonproliferation experts, as the spinning centrifuges open the door to a potential weapons program.
Prince Mohammed has already said the kingdom would pursue an atomic bomb if Iran had one, potentially setting off a nuclear arms race in the region as Tehran's program continues to move closer to weapons-grade levels. Saudi Arabia and Iran have eased off in recent months, although the region remains tense amid broader tensions between Iran and the US
Higher oil prices would also help Russian President Vladimir Putin finance his war against Ukraine. Western countries have used a price ceiling to try to reduce Moscow's revenue.
Western sanctions mean Moscow is forced to sell its oil at a discount to countries such as China and India.