Saudi Arabia To Cut Oil Production, Ending Recent Slide in Prices

Saudi Arabia, the de facto leader of the oil-producing cartel known as OPEC Plus, announced an agreement on Sunday to halt the recent slide in oil prices by cutting oil production, including an additional cut of one million barrels a day by Saudi Arabia for one month beginning in July – and potentially longer – in an attempt to address frustrations in the oil market. Even with two significant output cuts since October, the price of oil has decreased by about 15 percent over the past seven months.

The United Arab Emirates, which has been investing billions to increase its capacity to produce oil, was a minor winner on Sunday, gaining an increased quota of 200,000 barrels a day beginning in 2024. In the meantime, OPEC Plus reworked the output quotas of several countries, with the United Arab Emirates being one of the countries gaining production levels and some others losing production levels. However, the tricky issue of addressing quotas produced a meeting that lasted well into the evening in Vienna.

The Russia-led group of OPEC Plus announced they will continue their recent approach to proactively and preemptively achieve and sustain a stable oil market, as the market has been heavily influenced by broader economic factors.

The Saudi cut is the key feature of the recent agreement, bringing its daily output to approximately nine million barrels a day. Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, referred to the cut as the “Saudi lollipop” when announcing it during the news conference. However, this move contradicts Prince Abdulaziz’s previous suggestion that other countries needed to do more to cut production.

As far as the market is concerned, the deal tries to tackle issues that have plagued OPEC Plus for years. “I do think as the market digests the details, there is real substance here,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm. Despite this move, some oil-producing countries, such as Nigeria and Angola, were unable to meet their targets due to insufficient investment and other problems, and will be subject to decreased quotas from 2024.

While Russia announced a voluntary cut of 500,000 barrels a day back in February, skepticism about its compliance persisted and prompted comments at the news conference after the meeting. High Russian production levels and its increased share of Asian markets, including India, has been a continued sore spot for Middle East oil producers.

Saudi Arabia’s announcement came two days before U.S. Secretary of State Antony Blinken was scheduled to visit the country for talks with Saudi leaders. Crown Prince Mohammed bin Salman, the main policymaker in Saudi Arabia, wants high oil revenues to fund his ambitious development plans.

OPEC does not publish price targets, and its officials say they take a long-term view. However, analysts suggest the Saudis are now uncomfortable with prices falling below $80 a barrel for Brent crude, and this recent move sets off tensions with the Biden administration, which wants to keep oil prices low to ease pressure on American drivers and avoid putting a brake on the already weak global economy.