Saudi Arabia announced on Sunday that it will cut its oil supply to the world economy in a bid to boost prices.
The announcement came after several hours of negotiations at a meeting of OPEC + – the grouping of the 13 member Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and the group’s 10 partners, led by Russia.
The meeting was closely watched as a tough one, with Russia seen as wanting to maintain production levels, and Saudi Arabia looking to push up prices.
OPEC+ producers agreed at a meeting in Vienna to extend previous production cuts next year, while Saudi Arabia’s decision to cut 1 million barrels per day (bpd) was a unilateral move.
What does Saudi Arabia say?
Saudi Arabia’s output will drop to 9 million bpd in July from 10 million bpd in May.
The country’s Energy Minister Prince Abdulaziz bin Salman told reporters that Riyadh’s latest cuts are “extendable.”
OPEC+ producers “will do everything necessary to provide stability to this market,” he added.
“This is a Saudi lollipop,” said the prince. “We want to ice the cake. We want to add suspense. We don’t want people to try to predict what we’re going to do … This market needs stabilization.”
Why is Saudi Arabia cutting oil production?
Oil producers have suffered from falling prices and high market volatility due to Russia’s war in Ukraine.
In April, several OPEC+ countries agreed to voluntarily cut production by more than one million bpd. Prices initially jumped after the announcement, but later fell amid concerns about the weakness of the global economy.
Analysts see the latest cuts as likely to boost oil prices in the short term, while the long-term impact will depend on whether the cuts are further extended.
Jorge Leon, senior vice president of oil market research at Rystad Energy, told the Associated Press (AP) news agency that Riyadh’s decision provides “a price floor because the Saudis can play voluntary cuts if they want.”
The oil-rich country needs revenue to balance its budget and fund ambitious state projects. According to International Monetary Fund estimates, Saudi Arabia needs $80.90 per barrel to meet its projected spending commitments, which include a projected $500 billion futuristic desert city project.
How is Russia affected?
The Saudi decision and the rise in oil prices could benefit Russia, as Moscow finds new oil customers in India, China and Turkey amid Western sanctions.
Russian Deputy Prime Minister Alexander Novak said Moscow will extend its voluntary cut of 500,000 barrels a day until the end of 2024 under the OPEC+ deal, according to Russian state news agency Tass.
But Moscow’s total exports of oil and refined products, such as diesel fuel, rose in April to 8.3 million bpd, according to the International Energy Agency, a post-invasion record high.
fb/sri (AFP, AP)
