Saudi Arabia has announced that it will cut its daily oil exports to the world’s economy by one million barrels per day (bpd) as the OPEC+ group of major oil-producing nations struggles with falling oil prices and an impending supply glut.
After two earlier production cutbacks by OPEC+ members failed to raise prices, the kingdom announced on Sunday that it will make these output reductions in July to support the falling price of petroleum.
The Organization of the Petroleum Exporting Countries and its allies, including Russia, reached an agreement on output policy and decided to extend earlier supply cuts through the end of 2024 by a total of an additional 1.4 million barrels per day after seven hours of discussion at its headquarters in Vienna.
The new set of output targets is “much more transparent and much more fair,” Saudi Energy Minister Abdulaziz bin Salman said in a news conference, adding that “this is a grand day for us” due to the agreement’s “unprecedented quality.”
He said that, if necessary, Riyadh may extend the reduction beyond July.
The group cut the targets for Russia, Nigeria, and Angola to bring them in line with their actual current production levels, so many of these reductions won’t actually happen.
The United Arab Emirates, on the other hand, was permitted to increase output.
Since OPEC+ produces 40% of the world’s crude, its political decisions can have a significant impact on oil prices.
A 2 million bpd reduction, or 2% of world demand, that was agreed to last year is already in place.
It consented in April to a sudden voluntary drop of 1.6 million bpd that began in May and would last until the end of 2023.
However, those reductions did not significantly raise the price of oil.
benchmark on a global scale Despite reaching a high of $87 per barrel, Brent crude has since given up its post-cut gains and has been trading around $75 per barrel lately. The price of American crude has fallen below $70.
The drop in oil prices has made it easier for US cars to fill up their tanks and provided some relief from inflation for consumers throughout the world.
The 20 European nations that use the euro saw their inflation rate fall to its lowest point before Russia’s invasion of Ukraine, thanks in part to declining energy prices.
The uncertainty surrounding the outlook for petroleum consumption in the upcoming months is highlighted by the Saudis’ belief that another cut is required.
While there are worries about the US and European economies’ deterioration, China’s recovery from COVID-19 limitations has lagged below expectations.
Western countries have charged OPEC with manipulating oil prices and harming the world economy by driving up the cost of energy. In addition, the West has charged OPEC with supporting Russia despite sanctions over Moscow’s invasion of Ukraine.
OPEC insiders responded by claiming that over the past ten years, the West’s money creation has caused inflation and compelled oil-producing countries to take action to preserve the value of their principal export.
The majority of Russian oil exports have been purchased by Asian nations like China and India, which have also refrained from joining Western sanctions against Russia.
The most recent output decrease may increase oil prices, which would then raise gasoline prices. When the slow-growing global economy will once again be able to support industry and travel, it is still unknown.
To finance ambitious development initiatives intended to diversify the Saudi economy away from oil, the nation needs to maintain high oil prices.
According to the International Monetary Fund, the monarchy needs oil prices to be $80.90 per barrel in order to achieve its projected expenditure obligations, which include a $500 billion initiative to build a futuristic desert city dubbed Neom.
While oil producers require cash to support their national budgets, they also need to consider how rising prices will affect oil-consuming nations.
Overinflated oil costs can erode consumer purchasing power, promote inflation, and force central banks like the US Federal Reserve to raise interest rates.
Higher rates aim to reduce inflation, but they can also stifle economic growth by making it more difficult to get credit for purchases or corporate investments.