Saudi Arabia will cut output by 1m barrels per day throughout July © AlterYourReality via Getty Images
Saudi Arabia will cut output by 1m barrels per day throughout July © AlterYourReality via Getty Images

Oil prices rise as Saudi Arabia to cut production by 1m barrels a day

6 June 2023

Oil prices have risen following Saudi Arabia's decision to cut output by 1m barrels per day throughout July.

Saudi Arabia's latest decision was made outside the OPEC Plus oil producers’ bloc. Prices of the benchmark Brent Crude rose by up to 2.4% on Monday before settling at around $77 per barrel. Members of OPEC Plus agreed to continue with pre-agreed cuts in production.

The Saudi energy ministry said the country would drop output from around 10m in May to 9m barrels as it seeks to shore up prices.

OPEC Plus countries pump around 40% of the world's crude oil, and decisions to cut or expand output can have major effects on global prices.

Saudi Arabia's decision to unilaterally cut production outside the bloc is believed to be an indicator that it is less happy with relatively low oil prices than fellow OPEC Plus members such as Russia or the UAE.

Riyadh is believed to be keen for the price of crude to remain above $80 a barrel to enable it to keep spending large sums on ambitious projects to diversify the economy away from hydrocarbons.

According to IMF estimates, the country requires a minimum price of $80.90 per barrel to meet spending commitments, including the planned $500bn futuristic Neom desert city project.

Saudi energy minister Abdulaziz bin Salman said at a news conference that the government “wanted to ice the cake” and said the cut could be extended. “We will do whatever is necessary to bring stability to this market,” he said.

Analysts said that the cut would likely push up oil prices in the short term, but the longer-term impact will depend on whether Saudi Arabia decides to extend the measure.

While oil prices rose substantially in the immediate aftermath of Russia’s invasion of Ukraine, they have since settled despite combined production cuts of 4.6m barrels a day since then.

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