Saudi Arabia has announced deep production cuts for July as part of a broader output-limiting Opec+ deal to combat flagging crude prices and a looming supply glut. Riyadh will cut one million barrels per day, and the cut could be extended beyond July if deemed necessary, according to Prince Abdulaziz, the Saudi energy minister. “This is a Saudi lollipop,” he said. Opec+ groups the Organisation of the Petroleum Exporting Countries and allies led by Russia, and has agreed to reduce overall production targets from 2024 by a further total of 1.4 million barrels per day. However, the group has lowered the targets for Nigeria, Angola, and Russia to bring them in line with their actual current production levels. By contrast, the United Arab Emirates has been allowed to raise output.
Opec+ pumps around 40% of the world’s crude, meaning its policy decisions can have a significant impact on oil prices. The group has already implemented a cut of two million barrels per day agreed last year, which amounted to 2% of global demand. In April, Opec+ agreed to a surprise voluntary cut of 1.6 million barrels daily, which took effect in May and will continue until the end of 2023. Saudi Arabia has said it will extend its portion of voluntary cuts. The April announcement helped to drive oil prices about $9 per barrel higher to above $87, but they quickly retreated under pressure from concerns about global economic growth and demand. On Friday, international benchmark Brent crude settled at $76 a barrel.
Western nations 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 the invasion of Ukraine. However, Opec insiders have said the West’s money-printing over the last decade has driven inflation and forced oil-producing nations to act to maintain the value of their main export. Asian countries such as China and India have bought the greatest share of Russian oil exports and refused to join Western sanctions.
The latest cuts come as the global economy recovers from the Covid-19 pandemic, and demand for oil is expected to rise. However, the resurgence of Covid-19 in some parts of the world, such as India, has raised concerns about the pace of the global economic recovery. The cuts are expected to help stabilise crude prices and prevent a supply glut. The International Energy Agency has warned that the market could face a surplus of oil in the second half of this year if Opec+ does not maintain its production cuts.
The cuts have also raised concerns about the impact on oil-producing countries’ economies, particularly those that rely heavily on oil exports. The cuts could lead to reduced government revenues, job losses, and social unrest. However, some countries, such as Saudi Arabia, have diversified their economies to reduce their reliance on oil exports.
The Opec+ deal has been praised by some analysts for helping to stabilise oil prices and prevent a supply glut. However, others have criticised the group for manipulating oil prices and undermining the global economy. The group has also faced criticism for its lack of transparency and accountability. Some analysts have called for greater transparency and accountability from Opec+ to ensure that its decisions are fair and equitable. Others have called for the group to be disbanded altogether and for a new global energy governance system to be established.
The future of the global energy market is uncertain, with many factors, such as technological advances, climate change, and geopolitical tensions, influencing the demand for and supply of oil. However, one thing is clear: the global energy market is in a state of flux, and Opec+ will play a crucial role in shaping its future. The group will need to balance the interests of oil-producing countries with those of oil-consuming countries and ensure that its decisions are fair and equitable for all.