Saudi Arabia Extends Oil Production Cuts to Support Prices
In a bid to bolster oil prices, Saudi Arabia announced on Thursday that it would extend its decision to cut oil production by one million barrels a day for an additional month, until September. The move comes as the kingdom continues its efforts to stabilize the global oil market.
Oil prices have experienced a strong recovery in recent weeks, partly attributed to lower fuel stockpiles in the United States. However, China’s sluggish economic recovery has kept oil prices under pressure for most of this year. Saudi leaders are eager to maintain high oil prices as revenue from energy sales funds government spending and supports the country’s ambitious plans to diversify its economy beyond petroleum and petroleum products.
Following the Saudi announcement, the global benchmark Brent oil price rose by less than 1 percent, reaching about $84 per barrel. This decision by Saudi Arabia could further strain U.S. gasoline prices, which have surged in the past month. The national average price for a regular gallon of gasoline currently stands at $3.82, compared to $3.54 just a month ago. A year ago, the price was as high as $4.16 per gallon, as reported by the AAA motor club.
Russia, another leading member of the OPEC Plus alliance, had previously agreed to reduce production by 500,000 barrels a day. In response to Saudi Arabia’s announcement, Russia’s deputy prime minister, Alexander Novak, revealed that the country would cut 300,000 barrels a day in September. It is worth noting that Russia has been selling a large portion of its oil at discounted prices to China and India to finance its involvement in the conflict in Ukraine.
Saudi Arabia’s energy ministry disclosed that the country’s oil production for September would be around 9 million barrels a day, contributing to approximately 9 percent of global production. Since the third quarter of last year, the kingdom has already reduced production by nearly two million barrels a day. Alongside Asia, Europe has recently increased its purchases of Saudi crude due to the energy ties severed with Moscow following the Russian invasion of Ukraine last year.
Despite the record levels of production in the United States, the Biden administration has been urging Saudi Arabia to maintain high production levels. This appeal is primarily driven by the fact that oil prices are determined on the global market and significantly impact gasoline prices in the U.S.
It is important to note that Russia and Saudi Arabia play integral roles in OPEC Plus, an alliance of major oil-producing nations. However, countries outside the group, including Guyana and Brazil, have been ramping up their oil supplies in recent times, further shaping the dynamics of the global oil market.