Saudi Arabia: The leading member of the OPEC+ alliance, Saudi Arabia, has declared its intention to decrease its oil exports by one million barrels per day (bpd). The move comes as the alliance faces dwindling oil prices and the looming threat of a supply glut. In an effort to stabilize crude oil costs, the kingdom revealed plans on 4th June 2023 to implement these production cuts starting in July 2023.

This decision follows two previous attempts by OPEC+ members to boost prices through production cuts, which proved ineffective. The alliance, comprised of the Organization of the Petroleum Exporting Countries (OPEC) and allied nations such as Russia, convened in Vienna and agreed to extend the ongoing supply cuts until the end of 2024, totalling an additional reduction of 1.4 million bpd.

Saudi Energy Minister Mr. Abdulaziz bin Salman expressed his satisfaction with the outcome, referring to it as a momentous occasion due to the unprecedented quality of the agreement. The Minister emphasized the enhanced transparency and fairness in the new production targets. Furthermore, he indicated that the production cut by Saudi Arabia could be extended beyond July if necessary.

However, it is important to note that several of the announced reductions will not have a tangible impact since the group adjusted the targets for Russia, Nigeria, and Angola to align with their actual current production levels. Conversely, the UAE was granted permission to increase its output.

Given that OPEC+ is responsible for approximately 40 percent of global crude production, its policy decisions have a significant influence on oil prices. The alliance had previously implemented a 2 million bpd cut in response to the COVID-19 pandemic, accounting for 2 percent of global demand. In April, an additional surprise voluntary cut of 1.6 million bpd was agreed upon, effective from May until the end of 2023. However, these measures failed to provide a sustained boost to oil prices.

International benchmark Brent crude briefly surged to $87 per barrel following the production cuts but has since relinquished these gains, remaining below $75 per barrel in recent days. The price of US crude has dipped below $70. The decline in oil prices has had the positive effect of reducing fuel costs for US drivers and easing inflationary pressures globally. In fact, energy prices played a significant role in the decline of inflation in the eurozone, reaching the lowest level since before Russia’s invasion of Ukraine.

Saudi Arabia’s decision to implement further cuts underscores the uncertain demand outlook for fuel in the coming months. Concerns persist regarding economic weakness in the US and Europe, while China’s recovery from COVID-19 restrictions has been less robust than anticipated.

Western nations have accused OPEC of manipulating oil prices and jeopardizing the global economy through high energy costs. Additionally, OPEC has faced criticism for aligning with Russia despite Western sanctions imposed on Moscow due to its invasion of Ukraine.

In response, OPEC insiders have argued that excessive money printing by Western countries over the past decade has fueled inflation, compelling oil-producing nations to take action to maintain the value of their primary export. Asian countries, particularly China and India, have emerged as significant purchasers of Russian oil exports and have refused to join Western sanctions against Russia.

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