Saudi Arabia's Production Cut Decision and its Impact on Global Oil Prices

2023-06-05 13:45:00

London: Oil prices rose on Monday, albeit fairly moderately after Saudi Arabia decided to cut production by another million barrels per day, with the market still sensitive to concerns about demand.

Around 10:55 GMT (12:55 HEC), the barrel Brent BRENT Brent or North Sea crude is a variation of crude oil serving as a benchmark in Europe, listed on the InterContinentalExchange (ICE), a stock exchange specializing in energy trading. It has become the first international standard for setting oil prices. from the North Sea, for delivery in August, took 1,62% To 77,36 dollars.

Its American equivalent, the barrel of West Texas Intermediate (WTI WTI West Texas Intermediate (WTI), also known as Texas Light Sweet, is a variation of crude oil that serves as a standard in pricing crude oil and as a commodity for oil futures contracts with the Nymex (New York Mercantile Exchange). ), the stock exchange specializing in energy.) for delivery in July, won 1,94% To 73,13 dollars.

Saudi Arabia, OPEC heavyweight, decided on Sunday to make a new production cut from July, a “unilateral actionbehind the rise in prices, according to KCM Trade analyst Tim Waterer.

The country has indeed announced this new reduction at the end of a meeting in Vienna of OPEC + (the thirteen members of the Organization of the Petroleum Exporting Countries + their ten allies led by Russia).

But for Mr. Waterer, the current price increase”pales in comparison to the surge observed” in early April, when eight members of the group announced voluntary production cuts equivalent to more than a million barrels a day. They came on top of cuts from Russia, cutting the market by 1.6 million barrels of oil per day in total.

This “Mixed price reaction highlights fears that Saudi Arabia’s decision to single-handedly defend oil prices could undermine the global economy due to high energy costsand ends up weighing on demand, according to Stephen Brennock of PVM Energy.

Et “as other members (of OPEC+) do not seem inclined to close their production taps (…), the current rise in the price of oil could be short-lived“, emphasizes Tim Waterer.

For Craig Erlam, an Oanda analyst interviewed by AFP, the additional cuts made by the Kingdom “show how Saudi Arabia has become the only one to struggle against the markets“.

“The rhetoric is no longer that of a group supporting Russia, but that of Saudi Arabia desperately trying to dictate prices on its own“, he continues.

In parallel, the alliance also decided on Sunday new individual production targets for 2024.

The United Arab Emirates, eager to pump more, are the “big winners from production quota changes” with an additional allowance 200,000 barrels per day.

In return, other members such as Angola, Congo and Nigeria have seen their targets revised downwards.

“Due to underinvestment in oil production and infrastructure, a number of OPEC+ producers have been producing well below their quotas for some time.“, explain the CBA analysts, who say that the group’s decision aims to match the objectives of its members with their actual production levels.