Just How Real Is The Saudi Cut?

OPEC+ production math is funny. The market is always hesitant to believe any announcement from OPEC+ because the production cut is never the stated amount. Over the last few months, we've been hammering away a key central point: it's not an OPEC+ production cut, it's a Saudi cut.

Today, we will explore just how real the Saudi cut is.

One of the key bearish assumptions for the oil market today is that there is ~5 million b/d of spare capacity waiting on the sidelines. But as we've pointed out repeatedly, is that really the case?

Looking purely at OPEC+ crude exports excluding Saudi, you can easily make the argument that there's no real production decrease at all. Crude exports do not equate directly to crude production, but for the customers, there is really no difference. Exports equal supply, so if the customers are receiving the same amount, then it's not a real production cut.

Now in the ~5 million b/d of spare capacity, Saudi Arabia has a very large amount of it (40%). At ~2 million b/d of headline production cut, Saudi's stated production is averaging ~9 million b/d.

But this is where things get interesting...