Saudi Arabia’s production cut ‘heats up’ oil prices

2023-06-06 05:16:33

The announcement by OPEC+ (Organization of Petroleum Exporting Countries plus allies), last Friday (2), led by Saudi Arabia, that it intends to cut world oil production by up to 1 million barrels per day by July next – as a way of recovering the price of a barrel to the level of US$ 130, shortly after the outbreak of the war in Ukraine, in February of last year – was received with skepticism by the market, this Monday (5). For now, the value of the commodity remains ‘stuck’ around US$ 70 a barrel

Not even the Saudi decision to reduce, for the third consecutive time in eight months, the production of energy input – which was accompanied by exporting countries and allies, during the OPEC+ meeting in Vienna, Austria – sounded like a harbinger of crisis in the West, among analysts . In October of this year, the organization’s cut reached 2 million barrels per day, followed by another cut, of 1.1 million barrels per day, last April.

As a result, the European index of the oil and gas sector increased today (5) by 0.7%, while the Brent type – global reference – appreciated by 1.7%, at US$ 77.45 a barrel , and the similar Yankee West Texas Intermediate (WYI) – US reference – advanced 1.9%, at US$ 73.08 a barrel.

After being affected by the pandemic, in 2020, oil suffered a new setback with the war in Ukraine, aggravated by low demand from the First World, struggling with monetary tightening to combat resilient inflation, not to mention the problem of low growth on the part of the China, a major importer of the so-called ‘black gold’.

Responsible for producing half of the world’s oil, OPEC+ even faced resistance from African countries, members of the bloc, whose reduction in production could affect their respective budgets. However, the unilateral decision to cut production by Saudi Arabia prevailed.

Despite the efforts of OPEC+ to recover oil’s historic level, analysts at the Yankee bank Morgan Stanley lowered their forecast for Brent, whose barrel price should fall from US$ 87.50 to US$ 75 at the end of this year . Even with the cut, announced last weekend, the value of a barrel should not exceed the US$ 80 range.