Saudi Arabia’s decision to cut production by an additional million barrels per day has led to a rise in oil prices. The announcement came during the meeting of the Organization of the Petroleum Exporting Countries and its partners (OPEC+), where they decided to maintain the planned oil production cuts for the rest of the year. However, Saudi Arabia, the world’s top oil exporter, announced voluntary output cuts starting from July.
The kingdom stated that its output would decrease to 9 million barrels per day, down from around 10 million barrels in May. This news caused both Brent futures and U.S. West Texas Intermediate futures to initially rise more than 2% during early Asia trade. However, prices dipped lower by mid-morning. Currently, global benchmark Brent futures are trading at $77.22 a barrel, up 1.43%, while U.S. West Texas Intermediate futures rose 1.5% to $72.86 per barrel.
The decision by Saudi Arabia to unilaterally cut production by 1 million barrels per day surprised the market, highlighting the kingdom’s willingness to act independently to stabilize oil prices. Experts predict large global deficits in the second half of 2023, with some estimating crude prices exceeding $100 next year.
While some view Saudi Arabia’s independent action as a positive step that adds credibility to the production cuts, others see it as an “ultimate failure” in bringing better prices to the market. Concerns remain about weak demand in major consuming regions like China, the European Union, and the United States, which could result in oversupply if demand growth does not meet expectations. The potential for a recession further adds uncertainty to the oil market, with the possibility of prices dropping below $70.
The Commonwealth Bank of Australia predicts that Saudi Arabia may extend production cuts if Brent futures sustainably drop below the $70 to $75 per barrel range. Overall, the oil market remains volatile, with prices being influenced by various factors such as global demand, economic conditions, and OPEC+ production decisions.