Saudi Arabia’s Output Cut Sparks Rise in Oil Prices
Oil prices have experienced an upward surge following Saudi Arabia’s announcement of cutting one million barrels per day (bpd) in July. In a bid to bolster dwindling prices, other OPEC+ members have also agreed to extend production cuts. OPEC+ collectively accounts for approximately 40% of global crude oil, making their decisions crucial in shaping oil prices.
During Monday’s Asian trade, Brent crude oil witnessed a rise of up to 2.4% before stabilizing around $77 per barrel. Looking ahead, OPEC+ has revealed plans for an additional 1.4 million bpd production cut starting from 2024.
Sunday’s seven-hour-long meeting of oil-rich nations took place amid falling energy prices. While oil prices soared during Russia’s invasion of Ukraine last year, they have now returned to pre-conflict levels. In October 2022, OPEC+ initially agreed to cut production by two million bpd, equivalent to approximately 2% of global demand. However, talks on Sunday led to an extension of the deal until the end of 2024, as stated by Russian Deputy Prime Minister Alexander Novak.
Saudi Energy Minister Prince Abdulaziz bin Salman has indicated the possibility of extending the country’s one-million bpd cut beyond July if required, describing it as a measure to stabilize the market.
The decision-making process was not without challenges, as OPEC+ members grappled with the impact of production cuts on oil revenues, vital for sustaining their economies. Saudi Arabia’s voluntary reduction came as a surprise but was seen as a strategic move to maintain stability. As the leader and largest exporter of oil, Saudi Arabia had the capacity to decrease output.
Riyadh considers it vital to maintain crude prices above $80 per barrel to cover expenses and finance ambitious initiatives aimed at diversifying the economy away from oil. This determination also reflects concerns about future fuel demand due to uncertainties in the global economy, especially potential recessions in the US and Europe.
Oil producers confront the double challenge of declining prices and increased market instability amid Russia’s invasion of Ukraine. The West has accused OPEC of manipulating prices and undermining the global economy through high energy costs. On the other hand, OPEC insiders contend that the West’s monetary policies over the last decade have fueled inflation, compelling oil-producing nations to act to protect the value of their primary export.