Saudi Arabia to cut oil output by 1 million barrels a day in July

The rest of the OPEC+ oil producers agreed to extend previous supply cuts through the end of 2024.

Saudi Arabia has said it will cut the amount of oil it sends to the global economy by one million barrels per day (bpd) as the OPEC+ alliance of major oil-producing nations faces falling oil prices and a looming supply surplus.

The kingdom said on Sunday it would implement these production cuts in July to support declining crude oil costs after two previous production cuts by OPEC+ members failed to drive prices higher.

OPEC+, a group of the Organization of the Petroleum Exporting Countries and Allies led by Russia, reached an agreement on production policy after seven hours of talks at its headquarters in Vienna and agreed to extend previous supply cuts until the end of 2024 by total of 1.4 million barrels per day.

“This is a great day for us because the quality of the deal is unprecedented,” Saudi Energy Minister Abdulaziz bin Salman said at a news conference, adding that the new set of production targets is “much more transparent and much fairer”.

He also said Riyadh’s austerity could be extended beyond July if necessary.

However, many of these reductions will not be real as the group has lowered targets for Russia, Nigeria and Angola to bring them in line with their current current production levels.

The United Arab Emirates, on the other hand, were allowed to increase their production.

OPEC+ pumps about 40 percent of the world’s crude oil, meaning its policy decisions can have a major impact on oil prices.

It has already implemented a cut of 2 million barrels per day, as agreed last year, representing 2 percent of global demand.

In April, it agreed to a surprise voluntary cut of 1.6 million bpd that took effect in May until the end of 2023.

However, those cuts provided little lasting boost to oil prices.

International benchmark Brent crude climbed as high as $87 a barrel but has given up on gains after the cut, hovering below $75 a barrel in recent days. US crude oil has fallen below $70.

The slump in oil prices has helped American drivers fill their tanks more cheaply and has given consumers around the world some relief from inflation.

Falling energy prices pushed inflation in the 20 European countries that use the euro to the lowest level since the Russian invasion of Ukraine.

The fact that the Saudis felt a further 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 is less robust than many had hoped.

Western countries have accused OPEC of manipulating oil prices and undermining the global economy through high energy costs. The West has also accused OPEC of siding with Russia despite Western sanctions over Moscow’s invasion of Ukraine.

In response, OPEC insiders have said that money printing by the West over the past decade has fueled inflation and forced oil-producing countries to take action to preserve the value of their main export.

Asian countries, such as China and India, have bought up most of Russia’s oil exports and refused to join Western sanctions against Russia.

Uncertain result

It is possible that the latest cut in production could push up oil prices and, with it, gasoline prices. But there is uncertainty about when the slow-growing global economy will regain its appetite for fuel for travel and industry.

Saudis need continued high oil revenues to finance ambitious development projects aimed at diversifying the country’s economy away from oil.

The International Monetary Fund estimates the kingdom needs $80.90 a barrel to meet target spending commitments, which include a planned $500 billion futuristic desert city project called Neom.

While oil producers need revenues to fund their state budgets, they also need to consider the impact of higher prices on oil-consuming countries.

Oil prices that are too high can fuel inflation, undermine consumer purchasing power and prompt central banks such as the US Federal Reserve to hike further interest rates.

Higher rates target inflation, but can slow economic growth by making it harder to get credit for purchases or business investments.