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Oil prices reached a significant milestone in 2023, surging above $90 a barrel. This increase comes as Saudi Arabia and Russia announced the extension of their voluntary production and export cuts until the end of the year.
Saudi Arabia, the leading member of the expanded Opec+ cartel alongside Russia, has been implementing additional production cuts of 1 million barrels per day since July. What was initially meant to be a temporary measure has now been extended through December. Russia has also voluntarily reduced its exports by 300,000 barrels per day until the end of the year.
While these cuts may raise global inflation concerns, Saudi Arabia and Russia are determined to boost oil prices despite the high energy costs faced by many countries. This move is aimed at demonstrating unity and preventing a slowdown in global economic growth from affecting crude prices.
Experts anticipate that these supply cuts will create significant deficits in global oil balances and drive crude oil prices well above $90 per barrel. In response to the announcement, Brent crude, the international benchmark, rose almost 2% to $90.75 a barrel, marking its highest level this year.
This prolonged cut by Saudi Arabia is likely to create tension with the White House, as the Biden administration aims to keep pump prices in check ahead of the upcoming presidential election. Fuel costs and inflation are expected to be key areas of attack for the Republican party.
Industry figures are concerned that Russian President Vladimir Putin may try to use oil supplies to influence the election, especially if potential candidates like former President Donald Trump have expressed intentions to negotiate with Moscow over Ukraine.
Furthermore, Saudi Arabia’s relationship with Trump has also raised speculation as the kingdom seeks a higher oil price to support its economic reform program.
Prince Abdulaziz bin Salman, the half-brother of the Saudi Arabian crown prince, is the country’s energy minister. He has taken a more assertive stance on oil policy and is committed to maintaining a higher price for crude, despite pressure from the US to increase production to mitigate inflation.
According to Dan Pickering, chief investment officer at Pickering Energy Partners, Saudi Arabia’s extension of the production cut demonstrates their determination to prevent crude prices from slipping. Since the cuts were implemented in August, Brent crude has risen by approximately 15%.
Saudi Arabia’s state media stated that the decision to extend the cuts would undergo monthly reviews, indicating that further production cuts have not been ruled out.
The kingdom’s oil output has been reduced from around 10.5 million barrels per day in April to approximately 9 million barrels per day. With the recent announcement, it is expected to remain at this level until the end of December, representing a 25% decrease from its maximum capacity of 12 million barrels per day.
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