The price of Brent crude oil has experienced an increase following Saudi Arabia’s decision to cut its oil output, aiming to stabilize oil prices after a weekend of tense negotiations. During a meeting of the Opec+ group in Vienna, Saudi ministers agreed to reduce their output by 1 million barrels per day (bpd) starting next month. This move will result in Saudi Arabia’s oil production dropping from around 10 million bpd in May to 9 million bpd in July, marking the largest reduction in years.
The Opec+ group, which represents approximately 40% of global oil production, also agreed to further decrease production targets by 1.4 million barrels per day starting next year. As a result of these developments, Brent crude, the international benchmark for oil prices, saw a gain of over 2% on Monday, reaching a one-month high of $78.73 per barrel before slightly decreasing.
The increase in oil prices could pose a challenge for the UK’s efforts to combat persistently high inflation, as it may undermine the Bank of England’s and politicians’ endeavors to bring down prices.
In addition to the production cuts, Opec+ decided to extend the voluntary output reductions that were announced two months ago until 2024. This decision was made to support oil prices, which have been negatively affected by concerns over a surplus in supply and weakening demand. Last year, oil prices reached $120 per barrel due to Russia’s invasion of Ukraine, but fears about the global economy and the aftermath of Covid-19 lockdowns have diminished fuel demand, leading to a decline in oil prices.
Prince Abdulaziz, the Saudi energy minister, referred to the production cuts as a “Saudi lollipop,” explaining that the intention was to add suspense and avoid predictability. He emphasized the need for market stabilization.
Opec’s significant influence on the global oil market often leads to price movements. However, last year’s decision to reduce production drew criticism from the US President, Joe Biden, as it undermined his efforts to lower fuel costs.
The recent rally in oil prices has brought them back to the levels seen at the beginning of the year, although Brent crude reached as high as $82 per barrel in April.
As part of the Opec+ agreement, the United Arab Emirates increased its output target by 200,000 barrels per day starting from January. Several African members will have their quotas reduced next year, aligning them more closely with their actual production capacities.
Analysts have expressed concerns about potential fractures within Opec due to the preferential treatment of certain members at the expense of others. This situation could lead to challenges for the cartel in the coming months.
Despite expectations of a post-Covid rebound in oil demand, there has not been a significant increase thus far. Factors such as higher inflation and the threat of an economic slowdown continue to affect the global economy.
