Saudi Arabia to Cut Oil Output by 1M Barrels per Day

Facts

• Following a meeting of OPEC+ members at their headquarters in the Austrian capital Vienna, Saudi Arabia announced on Sunday that it will reduce its crude oil production by 1M barrels per day (bpd) in July in a bid to curb supply and boost falling prices.¹
• Saudi Energy Minister Prince Abdulaziz bin Salman said the kingdom's output will be cut to 9M bpd — down from around 10M bpd in May. The reduction is the country's largest in years and comes in addition to existing OPEC+ cuts of 3.66M bpd.²
• After lengthy discussions, the OPEC+ alliance, which includes the Organization of the Petroleum Exporting Countries and its Russian-led allies, agreed to reduce the overall production target by another 1.4M barrels per day from 2024.³
• Under the deal, the unmet production quotas of several African members will be lowered, and Russia — the world's second-largest oil exporter — will extend its existing cuts by one year through the end of 2024, while the UAE is authorized to raise output targets next year.⁴
• OPEC+'s decision to set a new production target of 40.46M bpd for 2024 comes as Brent crude, the international benchmark, dropped about 11% this year amid weak economic growth in the US and China, climbing slightly to about $76 a barrel on Friday.⁵
• Following Saudi Arabia's announcement of production cuts, which it said could be extended beyond July, Brent crude on Monday traded at $77.30 a barrel, while the US benchmark West Texas Intermediate hit $72.76 a barrel.⁶

Sources: ¹Al Jazeera, ²Reuters, ³Mint, ⁴Fortune, ⁵The National, and ⁶CNBC.

Narratives

• Narrative A, as provided by USA Today. Saudi Arabia's decision to cut oil production is set to backfire on Riyadh and the Saudi OPEC cartel. First, it will pump extra money into the pockets of Western-sanctioned Moscow, which, in order to finance its invasion of Ukraine, is unlikely to keep its promise to extend production cuts. Further, it could also reignite inflation, which is likely to curb global consumption and prompt central banks to hike interest rates further. This would put additional pressure on the global economy and thus reduce oil demand.
• Narrative B, as provided by Middle East Monitor. Saudi Arabia's announcement to voluntarily curb its crude production in addition to OPEC+ output cuts is a prudent precautionary measure to improve market stability given the faltering global economy, the banking crisis, and the ill-considered price cap on Russian oil. Moreover, money printing by Western countries in recent years has fueled inflation and lowered the US dollar's value — forcing major oil-producing countries to take action to protect the US dollar-based value of their most important export.

Predictions