Except for Saudi Arabia, all OPEC producers have also agreed to continue decreasing the supply until the 2024 end
Will the decision of Saudi Arabia to cut oil production affect the global oil market? Read on to know more…
The world’s largest oil exporter, Saudi Arabia, has decided to reduce its crude oil production from July 1, 2023. This move comes amid tighter market conditions brought on by the slowing global economy and concerns from international banks about future rate hikes.
On June 4, 2023, the Organization of Petroleum Exporting Countries with other associated groups (also called OPEC+) announced in its meeting that no further changes will be there in the global oil output for the rest of 2023. However, Saudi stepped forward to announce fresh production cuts. The oil output, therefore, will drop from around 10 million barrels per day in May 2023 to 9 million barrels per day (bpd) in July.
OPEC+ Agreement
OPEC+ has finally decided to reduce its overall oil production targets starting in 2024. The new total has been valued at 1.4 million barrels per day (bpd). Except for Saudi Arabia, all OPEC producers have also agreed to continue decreasing the supply until 2024 end.
Prince Abdulaziz Bin Salman, Saudi Arabia’s Energy Minister, commented that if required, the cut of nearly 1.4 million barrels per day (bpd) could be extended beyond July 2023 by Riyadh. He also termed this matter as a “Saudi Lollipop“.This arrangement was finalised after a disagreement between them and the African members. It also caused the meeting to be delayed for several hours.
Amin H. Naseer, CEO of Saudi Aramco, a public petroleum and natural gas company, commented that the demand from emerging countries, headed by China and India, will outweigh the possibility of a recession in developed markets. He also believes market fundamentals will remain “sound” for the second half.
He added that China and India are fueling a strong increase in oil demand of more than 2 million barrels per year (bpd) this year, even though many countries have been facing the risks of a recession. Both of these countries belong to the developing nations. Moreover, China’s petroleum and transport sectors are still exhibiting signs of demand growth.
Russia-Ukraine geopolitical tension contributed to the crude oil price rise.
Due to the impact of the war between Russia and Ukraine on commodity markets, crude oil prices have been fluctuating at $75 per barrel in recent months, as opposed to reaching record highs of nearly $140 per barrel in March 2022.
Investors were worried that the slowing global economy might influence overall fuel demand. Thus oil prices settled higher in the previous session but experienced their fourth consecutive quarterly decrease.
Oil price outlook
Analysts have predicted that oil prices will struggle to gain impetus as long as the global economy faces headwinds. Even so, some experts believe the market will be tightened in the second half of 2023, partially due to continuous supply cutbacks by OPEC+ and Saudi Arabia’s voluntary cut for July.
According to the analysts of HSBC, a British-based universal bank and financial services group, “The prices of crude oil have mostly remained below $80 per barrel despite the announcements of two additional rounds of cutbacks from OPEC and Saudi Arabia. This was because macroeconomic worries have more influenced the market than by fundamental factors.“
These analysts also believe that even if the big shortfall of 2.3 million barrels was anticipated for the second half of 23, it should help create upward price momentum. They also think this will continue to be the case for some of the summer.