Saudi Arabia to cut oil production to boost prices
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A blow for the wallet of the French? Saudi Arabia, OPEC heavyweight, decided on Sunday to make a new production cut in the hope of raising oil prices at half mast, in an economic context darkened by the war in Ukraine.
This voluntary reduction of around one million barrels per day applies from July and “may be extended”, said Saudi Prince Abdelaziz bin Salman during a press conference, after a meeting in Vienna of the thirteen members of Organization of the Petroleum Exporting Countries (OPEC) and their ten allies led by Russia.
In addition, the reductions introduced since the beginning of May by nine countries, including Riyadh and Moscow, for a total of 1.6 million barrels daily, “are extended until the end of 2024”, said Russian Deputy Prime Minister Alexander Novak. to the journalists present at the exit. The negotiations lasted several hours, with media reporting differences between the 23 participants, who represent 60% of the world’s black gold production.
After difficult discussions, the United Arab Emirates, eager to pump more, obtained an increase in the basis for calculating its crude production quota, according to the new table published by OPEC. According to the Bloomberg agency, this request initially came up against the reluctance of Angola, Congo and Nigeria, which in return saw their objectives lowered next year as they struggle to achieve them.
Far from the peaks of March 2022
This gesture from Ryad comes as prices have fallen in recent months despite the surprise announcement in early April of drastic cuts. The measure has effectively failed to lift prices in a market depressed by fears of a global economic recession, rate hikes by the main central banks and the laborious recovery of demand in China as it emerges from the anti-Covid restrictions.
Brent, the benchmark for crude oil in Europe, is currently trading at $76 a barrel, and its American equivalent, WTI at $71 – far from the peaks recorded in March 2022 at the start of the conflict in Ukraine (nearly $140). While signs of discord between Riyadh and Moscow threatened to disrupt the meeting, OPEC + displayed a united front while keeping the same course. Russia is in fact reluctant to further tighten the floodgates of black gold – manna used to finance its military offensive against Ukraine.
Because Moscow would hardly benefit from an increase in prices. Due to Western sanctions, only Russian oil priced at or below $60 can continue to be delivered. Beyond this ceiling, it is forbidden for companies to provide services allowing maritime transport (freight, insurance, etc.).
“On the other hand, Saudi Arabia needs higher prices to balance its budget”, explains Barbara Lambrecht, of Commerzbank, who evokes a break-even point around 80 dollars a barrel for Riyadh. “We didn’t have any disagreements. It is a joint decision made in the interest of the market,” assured Mr. Novak.
During the last major crisis in March 2020, Russia refused to cut into its production to support prices dragged to the abyss by the Covid-19 pandemic. The Saudi kingdom then flooded the market with oil, permanently driving down prices. “Saudi Arabia does not want this scenario to happen again, nor does Russia,” according to expert Yousef Alshammari of CMarkits.
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