Saudi Arabia unilaterally cuts its oil production to drive up the price

The world’s largest crude oil exporter and de facto leader of the expanded version of the Organization of Petroleum Exporting Countries (OPEC+) moves token. Saudi Arabia has announced this Sunday that it will withdraw one million barrels per day from the market – 1% of global production and close to 10% of its pumping – to try to stabilize the price of this raw material, still dominant in the world energy matrix. and essential to their own financial health. It is the biggest Saudi cut in two years.

The move, which will increase the share of the United Arab Emirates and some of its African partners in the cartel, those most fiercely opposed to a widespread cut in production and those with the least room for manoeuvre, aims to position the the price of crude oil once again above 80 dollars per barrel, the threshold that —according to the International Monetary Fund (IMF)— the Desert Kingdom needs to stabilize its budget and finance its megalomaniac investments. At the close of Friday, crude brent (the benchmark in Europe) was trading at 76 dollars, far from the 100 of a year ago.

“We will reduce [nuestra producción] in one million barrels per day from July”, said the Saudi Minister of Energy, Abdelaziz bin Salmán, after the meeting of the cartel, held in Vienna. The Saudi delegation has made an effort to make it clear that this is a “voluntary” cut and that it is in addition to those already announced in recent months, for a total of 3.6 million barrels and due at the end of the year. “We wanted to put the icing on the cake, always with suspense: we don’t want our movements to be predictable,” added Bin Salmán. “We have to stabilize the market.”

Riyadh has been the only one of the 23 OPEC+ countries (13 from the original OPEC, Russia and nine other additional partners) that has shown itself willing to turn off the oil tap this Sunday, a path that it will take for the third time in less than 12 months. The rest of its partners, with much less room for action —both in terms of production cost and total income— have limited themselves to extending the current pumping cuts until the end of 2024 to try to cope with a world demand that does not rise to the expected pace.

Russia, the second largest crude oil exporter on the planet, will not deepen the cuts but it does promise to extend the previously agreed limits. “We will extend our voluntary cuts of 500,000 barrels until the end of 2024 as a precautionary measure in coordination with the OPEC+ countries,” announced the Deputy Prime Minister of the Eurasian country and former Minister of Energy, Alexander Novak. Moscow, like Riyadh, needs the price of oil to rise to finance its very expensive military campaign in Ukraine.

Despite the fact that the influence of OPEC+ on the oil market as a whole has fallen in recent times, these countries continue to account for approximately 40% of the crude that is put on the market every day around the world. The next meeting of the expanded cartel is set for the end of November. In the oil world it is taken for granted that if the market does not respond to this new cut, the partners will call an emergency meeting to try to reverse the tables.

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