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Monday, July 15, 2024

Saudi Arabia slashes oil output by 1 million barrels per day

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Saudi Arabia, the world’s largest oil exporter, announced on Sunday that it would voluntarily cut its oil production by 1 million barrels per day (bpd) in July, in addition to the existing OPEC+ agreement to limit supply until the end of 2024.

The surprise move by the kingdom came after hours of tense negotiations among the OPEC+ group of oil-producing countries, which includes Russia and other non-OPEC allies. The group agreed to extend the current cuts of 3.66 million bpd, or 3.6% of global demand, until December 2024, amid concerns about the weak recovery of oil demand.

Saudi Energy Minister Prince Abdulaziz bin Salman said the extra cut was a “Saudi lollipop” to stabilize the market and deter speculators. He said Saudi Arabia’s output would drop to 9 million bpd in July, the lowest level since 2015. “We wanted to ice the cake. We always want to add suspense. We don’t want people to try to predict what we do… This market needs stabilization,” he told a news conference.

 The decision by Saudi Arabia was welcomed by other OPEC+ members, especially those who have been struggling to comply with their quotas or have been facing domestic pressure to increase their output. Russia, Nigeria and Angola agreed to bring their production in line with their targets, while the United Arab Emirates was allowed to raise its output slightly in 2024.

OPEC+, which pumps around 40% of the world’s crude oil, has been trying to balance the supply and demand of the market since 2016, when it first agreed to cooperate with Russia and other non-OPEC producers. The group has faced several challenges, including the collapse of oil prices in 2020 due to the pandemic, the rise of US shale production, and the geopolitical rivalry between Saudi Arabia and Iran.

 

The latest OPEC+ deal sent a clear signal that the group is determined to support oil prices and prevent a glut of supply. Brent crude, the international benchmark, rose by more than 2% on Sunday, closing at $76 per barrel. However, some analysts warned that the deal could also backfire if it leads to higher inflation and lower economic growth in oil-consuming countries.

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