Saudi Arabia announces it will cut production to stem falling oil prices

The group of major oil-producing nations known as OPEC Plus agreed on Sunday to embark on a complex effort to adjust production as it aims to halt the recent plunge in oil prices, including a further cut production of one million barrels per day by Saudi Arabia. Arabia.

The Saudi cut would be for a month from July, but could be extended.

The group, which includes Russia and its allies, was under pressure to strike a deal to reverse the pessimism that has dominated the oil market in recent weeks. Despite two substantial production cuts since October, the price of oil has fallen about 15% over the past seven months.

The deal, the fruit of lengthy negotiations on Saturday and Sunday, overhauls production quotas for several countries, with the United Arab Emirates gaining and some others losing production levels. “It’s certainly not a straight-forward deal,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm.

The agreement includes a voluntary reduction of 500,000 barrels per day that Moscow announced in February.

Comments at the press conference after the meeting revealed skepticism that Russia would meet these lower production levels. Russia’s high production levels and its increased share of Asian markets, including India, often at the expense of Middle Eastern oil producers, have become a hot topic within the group.

Some of the data “from Russia just doesn’t match,” said Suhail al Mazrouei, oil minister of the United Arab Emirates. He said Russian officials are “reaching out to explain the numbers.”

OPEC Plus, in a statement, said it was acting “to achieve and maintain a stable oil market” and was continuing its recent approach of being “proactive and preemptive.”

As far as markets are concerned, the key element of the deal is Saudi Arabia’s further production cut, which would bring its daily output to around nine million barrels per day. Saudi Oil Minister Prince Abdulaziz bin Salman called the move “the Saudi lollipop” when announcing it at the press conference.

After suggesting cuts were in sight ahead of the meeting, Prince Abdulaziz ended up being the only official to agree to take an immediate hit.

He may have obtained long-term concessions. With this agreement, OPEC Plus is trying to address long-standing differences that have made some of the group’s production decisions almost incomprehensible. For example, some oil-producing countries, including Nigeria and Angola, have been unable to meet their targets for years due to insufficient investment and other problems. They take hits to their quotas, starting in 2024.

At the same time, the United Arab Emirates, which is investing billions to increase its oil production capacity, was a modest winner on Sunday, gaining an increased quota of 200,000 barrels per day, from 2024. The United Arab Emirates has long sought to produce more oil, even staging a rare public fight with the Saudis in 2021 and suggesting he might quit OPEC.

With oil being vital to the economies and governments of many of these countries, it was no surprise that the delicate issue of quotas gave rise to a meeting that continued late into the evening in Vienna.

Mr. Bronze of Energy Aspects said the deal attempted to address the issues that plagued the group. “I think as the market digests the details, there’s real substance here,” he said.

Oil officials met over the weekend to decide what to do with markets that had weakened in recent weeks. Prince Abdulaziz had specifically warned that the group could cut production to prop up prices and trip up traders betting on lower prices.

Other producers, including Russia, have been less enthusiastic about cutting production.

Sunday’s meeting came just two months after OPEC Plus announced a previous round of cuts. These toppings started in May and had little time to make an impact. Analysts also say oil markets – where prices have fallen around 12% since mid-April – have been heavily influenced by broader economic factors, including weaker-than-expected economic growth in China since the end of April. of its “zero Covid” policies. This could mitigate the impact of supply cuts.

On Thursday and Friday, after Washington struck a debt ceiling deal, prices for Brent crude, the international benchmark, rose about $3 a barrel to around $76, but prices remain slightly below their levels on the eve of the April decline.

Saudi Arabia’s announcement comes days before US Secretary of State Antony Blinken is scheduled to visit the country for talks with Saudi leaders.

Saudi Arabia is the de facto leader of OPEC Plus, and under Prince Abdulaziz and his younger half-brother, Crown Prince Mohammed bin Salman, the country has become more aggressive in its oil policy than in the past, preferring make cuts with the aim of maintaining a floor below prices rather than letting the markets run their course.

Crown Prince Mohammed, the kingdom’s top policymaker, wants high oil revenues to fund his ambitious development plans.

Although OPEC does not publish price targets and its officials say they are taking a long-term view, analysts say the Saudis are now uncomfortable with prices below $80 a barrel of Brent. With OPEC Plus producing more than 40% of the world’s oil supply, the group can wield considerable influence in markets if it tries hard enough.

In the past, Saudi-led OPEC trimmers have sparked friction with the Biden administration, which wants to keep oil prices low to ease pressure on U.S. drivers and avoid dragging down the global economy. already weak.