Saudi Arabia to further cut its oil supply to boost the price

by time news

2023-06-05 00:15:07

Saudi Arabia committed yesterday to a new additional cut in its production as of July within a broader agreement reached by the alliance of exporting countries OPEC+, made up of the 13 members of the organization and other partners such as Russia. After an intense meeting of more than seven hours, this measure was agreed in order to raise the price of crude oil, which is around 76 dollars per barrel, below what they consider adequate. The cartel has already approved reductions in its pumping in October of last year and in April of this year, but it has not achieved the desired effect.

The appointment at the OPEC headquarters began almost three hours later than expected and the negotiation was arduous between these 23 countries responsible for 60% of world crude oil production. At the end, the Minister of Energy of Saudi Arabia, Abdel Aziz bin Salmán, explained that the unilateral cut that his country will apply from July will be one million barrels per day (mbd).

The keys

  • 76
    dollars is the price at which the barrel of Brent closed on Friday. The cartel wants to put it above $80.

  • Several attempts
    The exporting countries already approved cuts in April of this year and in October of last year.

  • Failure
    The supply restrictions have so far not achieved the desired effect of raising the price.

  • Downward trend
    Uncertainty, inflation and rising interest rates weaken the demand for crude oil.

The other important announcement by the oil cartel was that the cuts approved so far “are going to be extended until the end of 2024,” according to what the Russian Deputy Prime Minister, in charge of the Energy portfolio, Alexander Novak said at the end of the meeting. The reduction agreed in April was voluntary and involved nine countries and amounted to 1.6 million barrels per day. The one in October 2022 was mandatory and amounted to two million barrels. The total offer set for 2024 is 40.46 million barrels.

A key issue in the negotiation was the production base because it is used to calculate the pumping quotas per country and thus be able to configure a joint cut. The United Arab Emirates, which advocated for higher production, managed to increase its base.

According to the Bloomberg agency, this increase generated reluctance from African countries such as Angola, Congo and Nigeria, whose quotas were cut for next year. This block is producing at full capacity, but is barely meeting its pumping targets and is now under added pressure.

ephemeral rise

Delegates met in a climate of uncertainty about the global economy, with several negative economic indicators for crude oil demand. The voluntary cut announced in April and which came into force in May had a short-lived effect. At first he managed to raise the price by $9, but then he relaxed again. In fact, the price has accumulated a 10% drop since then.

Brent, which is the reference in Europe, is at 76 dollars a barrel and the American marker, WTI, is trading at 71 dollars, very far from the levels reached in March 2022 at the start of the war in Ukraine, when they reached about $140 a barrel.

At OPEC+ meetings, it is common for the pressure to cut production to prop up prices to face resistance from countries that need more oil revenue. In addition, crude oil producers met at a time when the market is plagued by the impact of inflation, the monetary tightening of the big banks, a less fluid than expected recovery in Chinese demand and various turbulences that have affected the system. financial.

Before the meeting there was speculation that Saudi Arabia and Russia would clash over their differences, but the OPEC+ meeting closed with a united front. Moscow is reluctant to turn off the oil spigot, which provides it with revenue to finance its military offensive. But the Russian minister was blunt: «We have no disagreements. This is a joint decision made in the interest of the market.”

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