The remaining OPEC+ oil producers agreed to extend earlier production cuts until the end of 2024.
Saudi Arabia has said it will reduce its oil supplies to the global economy by a million barrels per day (bpd) as the OPEC+ alliance of major oil-producing countries faces falling oil prices and a looming supply glut.
The kingdom said on Sunday it would make those production cuts in July to shore up falling crude costs after two previous production cuts by OPEC+ members failed to push prices higher.
OPEC+, which brings together the Organization of 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 production cuts by a further sum of 1 to 2024 until the end of 2024 .4 million barrels per day.
“This is a big day for us because the quality of the agreement is unprecedented,” Saudi Energy Minister Abdulaziz bin Salman said in a news conference, adding that the new production targets are “much more transparent and much fairer.”
He also said Riyadh’s cut could be extended beyond July if necessary.
Many of those cuts won’t be real, however, as the company lowered targets for Russia, Nigeria, and Angola to match their actual current production levels.
In contrast, the United Arab Emirates were allowed to increase their production.
OPEC+ produces around 40 percent of the world’s crude oil, which means its policy decisions can have a major impact on oil prices.
A cut of 2 million bpd was already agreed last year, equivalent to 2 percent of global demand.
In April, it agreed to a surprise voluntary cut of 1.6 million bpd that went into effect in May through the end of 2023.
(Al Jazeera)
However, these cuts have hardly resulted in a sustained rise in oil prices.
International benchmark Brent crude climbed as high as $87 a barrel but has given back gains after the cut and has remained below $75 a barrel for the past few days. US Crude Oil has fallen below $70.
The collapse in oil prices has helped US motorists to fill up their gas tanks more cheaply and has given consumers around the world some relief from inflation.
Falling energy prices also helped push inflation in the 20 European countries that use the euro to their lowest levels since Russia invaded Ukraine.
That the Saudis felt another cut was necessary underscores the uncertain outlook for fuel demand in the coming months.
There are concerns over economic weakness in the US and Europe, while China’s recovery from COVID-19 restrictions has been less robust than many had hoped.
Western nations accuse OPEC of manipulating oil prices and weakening 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 said that the West’s money-printing over the past decade has fueled inflation and forced oil-producing nations to take measures to preserve the value of their main export.
Asian countries like China and India have bought most of Russia’s oil exports and have refused to join Western sanctions against Russia.
uncertain outcome
It’s possible that the recent production cut could push up oil prices and, in turn, gasoline prices. However, there is uncertainty as to when the slow-growing global economy will regain its fuel hunger for travel and industry.
Saudi Arabia needs sustained high oil revenues to fund ambitious development projects aimed at diversifying the country’s economy away from oil.
The International Monetary Fund estimates that the kingdom needs $80.90 a barrel to meet its planned spending, which includes a proposed $500 billion futuristic desert city project called Neom.
While oil producers need revenue to fund their government budgets, they also need to consider the impact of higher prices on oil-consuming countries.
Excessively high oil prices can fuel inflation, weaken consumer purchasing power and push central banks like the US Federal Reserve to raise interest rates further.
Higher interest rates target inflation but can slow economic growth by making it harder to obtain credit for purchases or business investments.
(Al Jazeera)
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