Saudi Arabia has unveiled plans to implement a substantial reduction in its oil output during July, in addition to the broader agreement reached by OPEC+ to curb supply until 2024, in an effort to bolster declining oil prices.
According to the Saudi energy ministry, the country’s daily production will decrease to 9 million barrels per day (bpd) in July, representing the largest reduction in output witnessed in years, compared to the approximately 10 million bpd produced in May.
During a press conference, Saudi Energy Minister Prince Abdulaziz referred to this move as a “Saudi lollipop” aimed at adding suspense and avoiding predictability in the market. He emphasized the necessity of stabilizing the market, stating, “This market needs stabilization.”
OPEC+ comprises the Organization of the Petroleum Exporting Countries and its allies, led by Russia, and is responsible for pumping around 40% of the world’s crude oil. Consequently, the group’s policy decisions exert a significant influence on oil prices.
A surprising decision to cut supply in April briefly drove international benchmark Brent crude prices up by approximately $9. However, prices have since retreated due to concerns about the global economy’s weakness and its impact on oil demand.
By the end of the week, Brent crude settled at $76.
Saudi Arabia stands as the sole OPEC+ member possessing ample spare capacity and storage, enabling it to easily adjust production levels. The country demonstrated its ability to respond swiftly to oversupply, which weakened the market during the initial stages of the 2020 pandemic, when the group implemented record output cuts.
Extension of Supply Limits Until the End of 2024
OPEC+ had previously agreed on production cuts totaling 3.66 million bpd, equivalent to 3.6% of global demand. This included 2 million bpd agreed upon last year, alongside voluntary cuts of 1.66 million bpd implemented in April.
Initially, these cuts were set to remain in effect until the end of 2023. However, after seven hours of discussions, OPEC+ announced on Sunday that the cuts would be extended until the conclusion of 2024 as part of a broader output policy agreement.
Since the start of Russia’s invasion of Ukraine in February of the previous year, Western nations have accused OPEC of manipulating oil prices and undermining the global economy through high energy costs. The West has further accused OPEC of aligning with Russia.
In response, OPEC insiders have argued that excessive money printing in the West over the past decade has driven inflation and compelled oil-producing nations to take action to safeguard the value of their primary export.
Industry analysts view OPEC+’s decision on Sunday as a clear indication of the group’s willingness to support prices and counteract speculative activities.
Amrita Sen, co-founder of the Energy Aspects think-tank, stated, “It is a clear signal to the market that OPEC+ is willing to put and defend a price floor.”
Gary Ross, a veteran OPEC observer and founder of Black Gold Investors, remarked, “The Saudis have followed through on their warnings to speculators, clearly desiring higher oil prices.”
With the market closed on Sunday, UBS analyst Giovanni Staunovo predicted a strong opening when it resumes on Monday.
In addition to extending the existing OPEC+ cuts of 3.66 million bpd, the group also agreed on Sunday to reduce overall production targets from January 2024 by an additional 1.4 million bpd compared to current targets, resulting in a combined target of 40.46 million bpd.
However, several of these reductions will not be actual, as the group revised down the targets for Russia, Nigeria, and Angola to align them with their current production levels.
In contrast, the United Arab Emirates received approval to raise its output targets by approximately 0.2 million bpd to reach 3.22 million bpd.
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