Saudi Arabia says it will cut production to counter a fall in oil prices
The group of major oil-producing nations, known as OPEC Plus, said on Sunday it would undertake a complex effort to adjust production to halt the recent drop in oil prices, including an additional cut of one million in production. barrels per day by Saudi Arabia.
The Saudi rebate would be for one month starting in July, but could be extended.
The group, which includes Russia and its allies, has been under pressure to broker a deal to reverse the pessimism that has dominated the oil market in recent weeks. Despite two substantial cuts in production since October, oil prices have fallen about 15 percent over the past seven months.
The resulting deal reworks several countries’ production quotas, with some production levels rising and some falling. “This is certainly not a clean and simple deal,” said Richard Bronze, chief of geopolitics at Energy Aspects, a research firm.
OPEC Plus said in a statement it was acting “to achieve and maintain a stable oil market,” continuing its recent “proactive and preemptive” approach.
In terms of markets, the main feature of the agreement is the additional production cut by Saudi Arabia. Saudi Oil Minister Prince Abdulaziz bin Salman called the move “the Saudi lollipop,” as he announced it at a post-meeting press conference.
Oil officials met in Vienna over the weekend to decide what to do with markets that have weakened in recent weeks. In particular, Prince Abdulaziz had warned that the group could cut production to jack up prices and trip up traders betting on lower prices.
Other producers, including Russia, are less enthusiastic about cutting production.
Sunday’s meeting came just two months after OPEC Plus announced an earlier round of austerity. Those trims started in May and have had little time to make an impact. Analysts also say oil markets — where prices have fallen by about 12 percent since mid-April — have been heavily impacted by broader economic factors, including China’s weaker-than-expected economic growth since the end of its “zero Covid” policy. That could reduce the impact of cuts.
On Thursday and Friday, after Washington reached a deal on the debt ceiling, prices for Brent oil, the international benchmark, rose by about $3 a barrel to about $76 a barrel, but prices remain slightly below pre-dawn levels of the April cut.
Saudi Arabia’s announcement comes a few days before US Secretary of State Antony Blinken will visit the country for talks with Saudi leaders.
Saudi Arabia is the de facto leader of OPEC Plus, and under Prince Abdulaziz and his younger half-brother, Crown Prince Mohammed bin Salman, the country has become more aggressive in its oil policy than in the past, preferring to cut back on a floor below prices instead of letting the markets take their course.
Crown Prince Mohammed, the kingdom’s chief policymaker, wants high oil revenues to finance his ambitious development plans.
While OPEC does not publish price targets and its officials say it has a long-term view, analysts say the Saudis are now uncomfortable with prices below $80 a barrel of Brent oil. With OPEC Plus producing more than 40 percent of the world’s oil supplies, if they try hard enough, the group can exert significant influence over the markets.
In the past, Saudi Arabian-led OPEC trims have caused friction with the Biden administration, which wants to keep oil prices low to ease pressure on American drivers and prevent them from putting the brakes on the already weak global economy .