Richard Ginika Izuora

Saudi Arabia and Russia reaffirmed that they will stick with oil production curbs of more than 1 MMbpd until the end of the year as a rally in prices falters.

The leaders of the Organization of Petroleum Exporting Countries, OPEC+ coalition announced the plans in separate official statements on Wednesday.

Riyadh has slashed crude oil production by 1 MMbpd, and Moscow is curbing exports by 300,000 bpd, on top of earlier cuts made with fellow OPEC+ nations.

Oil prices surged to almost $100 a bbl in London last week as the two nations choked supplies just as global demand hits a record, draining inventories at the fastest pace in years.

But the rally has since cooled, with Brent futures retreating to near $89 on Wednesday amid signs that the price spike is encouraging the Federal Reserve to keep interest rates higher for longer. JPMorgan Chase & Co. says “demand destruction has begun” as fuel costs squeeze consumers.

“Market attention has shifted from the focus on the short-term tightness to the implications of interest rates staying higher for longer” and “the subdued macro environment that entails,” said Callum Macpherson, head of commodities at Investec.

The two oil allies reaffirmed their plans with identical wording in separate statements, released first on the Saudi Press Agency and then shortly after by Russian Deputy Prime Minister Alexander Novak.

The oil production curbs are intended “to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets,” they said.

Yet OPEC’s own data indicate the measures will leave global markets severely short this quarter, potentially draining inventories by more than 3 MMbpd— the fastest pace in years.

Indian Oil Minister Hardeep Puri told Bloomberg TV on Tuesday that oil prices need to fall to levels of around $80 a bbl to be good for the economy. The world’s third biggest oil user is continually telling producing nations that crude is too costly, an official told the ADIPEC energy conference in Abu Dhabi the previous day.

Meanwhile, U.S. policymakers have signaled that monetary policy may need to remain tight. Federal Reserve Bank of Cleveland President Loretta Mester said the U.S. will likely need to raise rates once more this year, and that rising gas prices resonate strongly with consumers.

A monitoring meeting among key nations from OPEC+ and its partners on Wednesday didn’t make any recommendations to change policy. Most members, their oil production hobbled by underinvestment and disruptions, have been unable to join in the Saudi-Russia action, limiting the group’s scope for collective action.

“The committee will continue to closely assess market conditions,” according to a statement on OPEC’s website. The group is “ready to take additional measures at any time.”

Riyadh and Moscow have said they will review their extra curbs each month. If they push prices above $100 a bbl, the conversation may turn to whether the kingdom would intervene to stop the market over-shooting. Goldman Sachs Group Inc. expects Saudi Arabia to restore supplies to prevent prices climbing far beyond $105 a bbl, in case that erodes consumption.

The full 23-nation OPEC+ coalition will hold a ministerial meeting on Nov. 26 to review policy for 2024.