Quick Bites | Saudis looking to boost oil prices by cutting production

Saudi Arabia (SA) is trying to boost the oil price with its announcement of an output cut of 1 million barrels a day.

Saudi energy minister Prince Abdulaziz bin Salman, OPEC’s (Organization of the Petroleum Exporting Countries) de facto leader, made the move as part of a deal in which several African members will have quotas reduced from next year. Russia, the world’s second-largest oil exporter, could also have its production targets lowered. Meanwhile, the UAE will be able to increase its production.

Oil prices have slid in the past 10 months despite attempts by producers to tighten supplies. The Saudis and other members of OPEC+ announced a surprise cut in April but, after briefly rallying towards $90 a barrel, prices again reversed, falling to $70 a barrel in late May.

The reduction will lower Saudi Arabia’s output to 9 million barrels per day (b/d) in July and comes in addition to a voluntary 500,000 b/d cut announced in April when its output was around 10.5 million b/d. SA has a maximum output capacity of about 12 million b/d. According to International Monetary Fund estimates, SA needs an oil price above $80 a barrel to balance its budget and fund some of the “giga-projects” that Crown Prince Mohammed bin Salman hopes can transform its economy.

OPEC has faced criticism for its alliance with Russia following the invasion of Ukraine last year, and for trying to prop up prices during an energy crisis triggered by Moscow’s actions. The decline in oil prices since October has been an encouraging sign for those worried about inflationary pressures but does add to doubts about the resilience of global economic growth.

Source: Daily FX

 

 

Disclaimer: Clime Asset Management Pty Limited | AFSL 221146 | ABN 72 098 420 770.  The information provided in this post is intended for general use only. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information contained therein. Please consider the relevant disclosure document/s before investing in one of our products. Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor. Investors risk losing some or all of their capital invested. Past performance of financial products is not a reliable indicator of future performance or returns.