Saudi Arabia Announces Additional Production Cut, Sending Oil Prices Soaring

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In a move to bolster crude oil prices, Saudi Arabia has announced its intention to slash oil output by an additional 1 million barrels per day for at least a month starting in July. The decision came during a meeting of the OPEC+ alliance, comprising members of the Organization of the Petroleum Exporting Countries (OPEC), Russia, and other smaller producers, held in Vienna on Sunday.

According to the state-owned Saudi Press Agency, the Kingdom of Saudi Arabia confirmed that it would implement this voluntary production cut to support the stability and balance of oil markets. The news immediately drove oil prices higher, with Brent crude, the global benchmark, rising 1% to $76.9 per barrel in Monday morning Asian trade, while WTI, the US benchmark, saw a 1.2% increase to $72.6 per barrel.

Additionally, Riyadh agreed to extend a previously announced production cut of 500,000 barrels per day through 2024. Russian Deputy Prime Minister Alexander Novak stated that Moscow would also extend its own production cut of 500,000 barrels per day until the end of next year. Reuters reported that other OPEC+ members would continue to curtail output until the end of next year as well.

The decision by Saudi Arabia to further reduce production has raised speculation and surprise among market participants. The country’s energy minister had previously hinted at the possibility of additional cuts, stating that short-sellers should be cautious. Prince Abdulaziz bin Salman, during a conference in Qatar organized by Bloomberg, described the move as a Saudi lollipop, aiming to add suspense and surprise to the market.

While the recent production cut has helped lift oil prices, the overall outlook for the US and global economies remains uncertain, placing pressure on crude oil markets. Economic growth concerns in the United States and China, the world’s top two economies, have weighed on sentiment. Germany, Europe’s largest economy, faces challenges as China, its most crucial trading partner, experiences a slowdown.

The surprise decision by OPEC+ to further reduce oil production complicates the fight against inflation for central banks, including the US Federal Reserve. Oil prices had risen above $76 a barrel on Friday, partly due to expectations that the Federal Reserve may delay raising interest rates. However, despite the recent increase, oil prices remain more than 11% down since the start of the year, trading near pre-April levels when the initial OPEC+ production cuts were announced.

The weekend meetings of OPEC+ were held with limited media access, adding to the intrigue surrounding the decisions made. Reporters from Reuters, Bloomberg, and the Wall Street Journal, who usually cover such events, did not receive invitations or accreditation from OPEC to attend the meeting.

As the oil market reacts to Saudi Arabia’s unexpected move, industry experts and market participants remain cautiously optimistic about stability, with hopes that demand will pick up in the future. However, the sentiment among oil traders remains fragile, underscoring the ongoing uncertainties surrounding the global energy landscape.