FRANKFURT, Germany (AP) — Saudi Arabia will cut the amount of oil it sends to the global economy, taking a unilateral step to shore up the fall in crude prices after two earlier supply cuts by major producing countries in the OPEC+ alliance failed to push oil higher.
The Saudi cut of 1 million barrels per day, due to start in July, comes as the other OPEC+ producers agreed at a meeting in Vienna to extend previous production cuts until next year.
Calling the cut a “lollipop”, Saudi Arabian Energy Minister Abdulaziz bin Salman told a news conference that “we wanted to freeze the cake”. He said the cut could be extended and the group “will do whatever it takes to bring stability to this market.”
The new cut is likely to push up oil prices in the near term, but the further impact will depend on whether Saudi Arabia decides to extend it, said Jorge Leon, senior vice president of oil markets research at Rystad Energy.
The measure provides “a floor price because the Saudis can play with the voluntary cut as much as they want,” he said.
Falling oil prices have helped American drivers fill up more cheaply and have given consumers around the world some relief from inflation.
“Gas is not going to get cheaper,” Leon said. “If anything, it will get marginally more expensive.”
The fact that the Saudis felt another cut was necessary underscores the uncertain outlook for fuel demand in the coming months. There are concerns about economic weakness in the US and Europe, while China’s recovery from COVID-19 restrictions has been less robust than many expected.
Saudi Arabia, the dominant producer in the OPEC oil cartel, was one of several members who agreed to a surprise cut of 1.6 million barrels per day in April. The kingdom’s share was 500,000. That followed OPEC+ announcing in October that it would cut 2 million barrels a day, angering US President Joe Biden by threatening to hike gasoline prices a month before the midterm elections.
In total, OPEC+ has now cut paper production by 4.6 million barrels per day. But some countries can’t produce their quotas, so the actual reduction is around 3.5 million barrels a day, or more than 3% of global supply.
Earlier cuts gave a short-lived boost to oil prices. International benchmark Brent crude rallied as high as $87 a barrel but has given up its post-cut gains and has been hovering below $75 a barrel in recent days. US crude oil has recently fallen below $70.
That has helped American drivers kick off the summer travel season, with prices at the pump averaging $3.55, down $1.02 from a year ago, according to the AAA car club. Falling energy prices also helped push inflation in the 20 European countries that use the euro to the lowest level since before Russia invaded Ukraine.
The Saudis need sustained high oil revenues to finance ambitious development projects aimed at diversifying the country’s economy.
The International Monetary Fund estimates that the kingdom needs $80.90 a barrel to meet its planned spending commitments.
