Business

Saudi Arabia cuts oil output to boost prices

The move to slash supplies by 1 million barrels per day in July is "extendable," said Riyadh

An oil rig (photo: DW)
An oil rig (photo: DW) DW

Saudi Arabia on Sunday announced that it would slash its oil supplies to the global economy in a bid to prop up prices.

Published: undefined

The announcement came after hourslong negotiations at an OPEC+ meeting — the grouping of the 13-member Organization of the Petroleum Exporting Countries (OPEC), headed by Saudi Arabia, and the group's 10 partners, led by Russia.

Published: undefined

The meeting was closely watched as a tough one, with Russia seen as wanting to maintain production levels, and Saudi Arabia seeking to push prices.

Published: undefined

OPEC+ producers agreed in the meeting in Vienna to extend earlier production cuts through next year, while the Saudi decision to slash 1 million barrels per day (bpd) was a unilateral step.

Published: undefined

What did Saudi Arabia say?

Published: undefined

Saudi Arabia's output will drop to 9 million bpd in July from around 10 million bpd in May.

Published: undefined

The country's Energy Minister Prince Abdulaziz bin Salman told reporters that Riyadh's latest cut is "extendable."

Published: undefined

OPEC+ producers "will do whatever is necessary to bring stability to this market," he added.

Published: undefined

"This is a Saudi lollipop," the prince said. "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."

Published: undefined

Why is Saudi Arabia cutting oil output?

Published: undefined

Oil producers have suffered from falling prices and high market volatility in light of Russia's war in Ukraine.

Published: undefined

In April, several OPEC+ countries agreed to cut production voluntarily by more than one million bpd. Prices initially jumped after the announcement, but later plunged amid concerns about the weakness of the global economy.

Published: undefined

Analysts see that the latest cut is likely to hike oil prices in the short term, while the long-term impact will depend on whether the cuts are further extended.

Published: undefined

Jorge Leon, senior vice president of oil markets research at Rystad Energy, told the Associated Press (AP) news agency that Riyadh's decision provides "a price floor because the Saudis can play with the voluntary cut as much as they like."

Published: undefined

The oil-rich country needs revenue to balance its budget and fund ambitious state projects. According to estimates by the International Monetary Fund, Saudi Arabia needs $80.90 per barrel to meet its envisioned spending commitments, which include a planned $500 billion futuristic desert city project.

Published: undefined

How is Russia affected?

Published: undefined

The Saudi decision and increases to oil prices could profit Russia, since Moscow has found new oil customers in India, China and Turkey amid Western sanctions.

Published: undefined

Russian Deputy Prime Minister Alexander Novak said Moscow would extend its voluntary cut of 500,000 barrels a day until the end of 2024 under the OPEC+ deal, according to Russian state news agency Tass.

Published: undefined

But Moscow's total exports of oil and refined products, such as diesel fuel, rose in April to 8.3 million bpd, according to the International Energy Agency, in a post-invasion record high.

Published: undefined

fb/sri (AFP, AP)

Published: undefined

Follow us on: Facebook, Twitter, Google News, Instagram 

Join our official telegram channel (@nationalherald) and stay updated with the latest headlines

Published: undefined