Fueling the Fire: Crude Oil Prices Skyrocket to $77 a Barrel Following Saudi Arabia’s Output Cut

“Saudi Arabia’s Production Cut Pledge Boosts Global Oil Prices by Over 1% a Barrel”
Fueling the Fire: Crude Oil Prices Skyrocket to $77 a Barrel Following Saudi Arabia's Output Cut

Saudi Arabia, the world’s top crude exporter, has promised to cut production by an additional 1 million barrels per day from July to counter macroeconomic headwinds that have depressed markets. The announcement led to a more than 1% rise in global oil prices, with Brent crude rising by $1.00 to $77.13, now up by more than 2%. The voluntary cut is Saudi Arabia’s biggest in years and will see the kingdom’s output drop to 9 million barrels per day in July from about 10 million daily barrels in May. This cut is on top of a broader deal by the Organisation of the Petroleum Exporting Countries (Opec) and allies, including Russia, to limit supply into 2024 as the Opec+ producer group seeks to boost flagging oil prices.

The International Energy Agency’s head, Fatih Birol, said that the chance of higher oil prices had increased sharply after the new Opec+ deal. Opec+ pumps about 40% of the world’s crude and has cut its output target by a total of 3.66 million daily barrels, which amounts to 3.6% of global demand. While the market reaction was relatively muted after the previous cut by Opec+ failed to prop up prices for long, the additional Saudi cut is likely to deepen the market deficit to more than 3 million barrels per day in July, according to consultancy Rystad Energy. This could push prices higher in the coming weeks.

Phil Flynn, an analyst at Price Futures Group, said: “The market is still trying to assess the impact of what the Saudi production cut actually means. Oil seems to be taking the news as very bullish, and it is.” SEB analyst Bjarne Schieldrop said the market reaction was relatively muted after the previous cut by Opec+ failed to prop up prices for long. Goldman Sachs analysts said the meeting was “moderately bullish” for oil markets and could boost December 2023 Brent prices by between $1 and $6 a barrel, depending on how long Saudi Arabia maintains output at 9 million barrels a day over the next six months. “The immediate market impact of this Saudi cut is likely lower, as drawing inventories takes time, and the market likely already put some meaningful probability on a cut today,” the bank’s analysts added.