Saudi Arabia and Russia have decided to extend their cuts in oil production in order to stabilize prices and boost their income from the fossil fuel. Despite a weakened demand due to the economy, these two major oil producers are taking steps to support the stability and balance of oil markets.
The Saudi Energy Ministry announced that they will continue with the July cut of 1 million barrels per day throughout August, keeping their output at 9 million barrels per day. On the other hand, Russian Deputy Prime Minister Alexander Novak stated that Russia will cut production by an additional 500,000 barrels per day in August.
These voluntary reductions come in addition to the cuts already agreed upon by the OPEC oil cartel and allied producers. However, these reductions have had limited long-term impact on oil prices, providing relief to consumers worldwide and allowing U.S. drivers to fill their tanks more affordably during the summer travel season.
Currently, the average price for a gallon of gas in the U.S. is $3.53, down $1.28 per gallon from last year. Oil prices experienced a slight boost following the announcement, with benchmark U.S. crude rising to $71.41 a barrel and international standard Brent crude reaching $76.11.
The uncertain outlook for fuel demand, despite an increase in travel, is a key factor in the decision to implement further cuts. Economic weakness in the U.S. and Europe, along with China’s slower rebound from COVID-19 restrictions, contribute to the need for sustained high oil revenue for Saudi Arabia and Russia.
Saudi Arabia requires this revenue to fund development projects aimed at diversifying its economy, while Russia seeks to pad its profits to support its war against Ukraine. Additionally, Western sanctions have led Russia to sell its oil at a discount to countries like China and India, resulting in a significant decrease in its export revenue.
In August, Russia’s output will be reduced by 1 million barrels per day, in addition to the previous cuts. However, there were concerns that Russia did not fully meet its promised production decrease in May, falling short by 100,000 barrels.
Overall, the decision to extend oil production cuts demonstrates Saudi Arabia and Russia’s efforts to address the challenges posed by the current economic climate and support the stability of the oil market.
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