In recent months, Saudi Arabia and Russia have easily earned billions of dollars more in oil revenue despite lower production after their decisions to cut production sent crude prices through the roof.
Cutting production is a risky strategy, both economically and politically. But for the two most important members of the Organization of the Petroleum Exporting Countries and its Russia-led Allies, known as Opec +, the cuts appear to have paid off. According to calculations by Energy Aspects, a consultancy, higher prices more than made up for the drop in sales.
The influx of money is helping the kingdom under Crown Prince Mohammed bin Salman fund big-ticket projects at home and continue its investment-driven influence campaign abroad. The extra money also ensures that Russian President Vladimir Putin can press ahead with his war in Ukraine.
Analysis by Energy Aspects shows that Saudi oil revenues could increase by nearly $30 million a day this quarter from the April-June period, an increase of about 5.7%. For the three-month period as a whole, that equates to about $2.6 billion. According to the data, Russia's oil revenues could increase by about $2.8 billion.
Some market watchers say these successes could prompt Opec to consider more restrictions on global supply. Saad Rahim, chief economist at Trafigura, said: "Opec + is very much in the driver's seat. Arguably, there are more restrictions to come."
Opec has been ratcheting up pressure on the oil market for months, but its actions have recently been offset by concerns about a global recession and weak growth in China, which has kept prices trading in a fairly tight range.
In October, Opec members said they would cut production by 2 million barrels per day, the biggest cut since the coronavirus outbreak. A smaller group led by Saudi Arabia announced a second cut of more than 1 million barrels a day in May. In July, Saudi Arabia cut production by a further 1 million barrels per day. Then, on September 5, Saudi Arabia and Russia said they planned to extend their production cuts until the end of the year.
Brent crude, the global benchmark, is up 25% this quarter and has traded as high as $95 a barrel in recent days, though it has retreated slightly recently. Brent, the most actively traded contract, closed at $92.43 a barrel on Tuesday.
Opec + forecasters expect a global supply gap of 3.3m barrels a day in the fourth quarter, and many oil analysts now expect benchmark Brent crude to rise above $100 a barrel soon.
"It's not such a bold call anymore," said Livia Gallarati, oil market analyst at Energy Aspects. "Oil prices will slowly rise. Supply is fundamentally tight."
Implementing a production reduction strategy is risky, as a reduction in production by a large producer could lead to a loss of market share to competitors, and oil revenues could also fall sharply if production cuts fail to boost prices. High energy costs would also upset Washington because they could put new inflationary pressures on the economy.
Saudi Arabia and Russia produce oil cheaply, averaging $9.30 and $12.80 a barrel last year, according to estimates by Rystad Energy. Such low costs mean that much of the revenue from oil exports can be converted into profits.
Saudi Arabia, whose economy has historically waxed and waned with swings in the oil market, would welcome higher prices, and the performance of its big development projects has been somewhat mixed.
The country has ramped up Capital spending, up 37 per cent in the first half of 2023 from a year earlier, according to Capital Economics. Saudi Arabia's Vision 2030 mega-project, the new city-state of Neom, has begun construction, with a total investment of $500 billion and an area the size of Massachusetts.
The International Monetary Fund estimated earlier this year that Saudi Arabia needs an oil price of about $81 a barrel to balance its budget. If Saudi Arabia continues to struggle to secure foreign investment for projects such as Neom, the budget balance could rise to close to $100, analysts say.
Meanwhile, Russia's war in Ukraine has been costly. Spending jumped 35 percent in the first quarter of this year, according to Oxford Economics, adding nearly two trillion rubles, or about $20.7 billion, compared with the same period a year earlier. Russia's government budget has been running a deficit since the middle of last year.
Urals crude, Russia's most popular oil variety, has been trading at more than $75 a barrel in recent days. That is above the $56 average reported by the central bank for the second quarter and above the $60 ceiling set by the Group Of Seven nations to limit Russia's oil revenues.
The Russian government banned diesel and gasoline exports last week, adding to strains on global energy supplies. Global diesel prices jumped on fears of further reductions in already tight supplies.
"This is Russia weaponising energy again," said Helima Croft, head of commodity strategy at RBC Capital Markets. She said it was "a real concern at a time when the oil market is exceptionally tight". According to The Wall Street Journal, infighting between the Kremlin and oil companies like Rosneft over fuel shortages was another factor that prompted the Russian government to enact the ban.
Some economists are still predicting slower growth in Saudi Arabia and Russia as a result of the cuts. But James Swanston, an economist at Capital Economics, says much of that stems from quirks in the way real gross domestic product, or GDP adjusted for inflation, is calculated. He says this measure of economic output is measured in terms of quantity rather than price.
"If we just look at the oil price, the prospects for Saudi Arabia and Russia look much brighter," Swanston said. "It may not change the economic game, but it will allow these two countries to continue to have money to spend," he said.