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Aug. 3 (UPI) — According to official sources, the Ministry of Energy in the Saudi government has decided to extend the voluntary production cut of 1 million barrels per day until September.
The extension of the cuts, initially implemented in July, was confirmed by the Saudi Press Agency, citing an “official source” in the ministry.
“This additional voluntary cut is intended to further support the stability and balance of oil markets, in line with the precautionary efforts made by OPEC+ countries,” the report stated.
OPEC+ refers to the core group of the Organization of the Petroleum Exporting Countries and its non-member state allies, including Russia. The production cut extension is crucial for Saudi Arabia, which relies on oil prices above $80 per barrel to maintain fiscal stability.
The price of Brent crude oil, the global benchmark, crossed the $80 mark on July 21 and has been steadily increasing since then. As of 10:30 a.m. EDT, Brent was trading around 0.8% higher, approaching $85 per barrel.
Although the second half of the year was expected to bring supply-side pressures due to OPEC+ restrictions, the majority of the cuts have been implemented by Saudi Arabia, with Russia providing some support.
This week, commodity prices rose in response to a significant decrease in commercial crude oil inventories in the world’s largest economy, the United States.
According to the U.S. Energy Information Administration, domestic crude oil inventories fell by 17 million barrels last week. However, storage levels remain only 1% below the five-year average for this time of year.
Rising energy prices may have a negative impact on consumer-level inflation, particularly in the U.S. economy which is sensitive to retail gasoline prices.
Helima Croft, the head of global commodity strategy at RBC Bank, suggested that the decision to extend cuts may not be welcomed by the White House.
“Considering concerns about the rise in retail gasoline prices, the White House would certainly not welcome another one-month extension,” she stated on Wednesday.
“However, we do not believe it will cause a significant rift, especially if it concludes before autumn in the nation’s capital.”
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