Saudi Arabia is cutting oil production in move that could push U.S. gas prices higher
USA TodayJun 04, 2023
Following a meeting of OPEC+ members at their headquarters in the Austrian capital Vienna, Saudi Arabia announced on Sunday that it will reduce its crude oil production by 1M barrels per day (bpd) in July in a bid to curb supply and boost falling prices.
Saudi Energy Minister Prince Abdulaziz bin Salman said the kingdom's output will be cut to 9M bpd — down from around 10M bpd in May. The reduction is the country's largest in years and comes in addition to existing OPEC+ cuts of 3.66M bpd.
Saudi Arabia's decision to cut oil production is set to backfire on Riyadh and the Saudi OPEC cartel. First, it will pump extra money into the pockets of Western-sanctioned Moscow, which, in order to finance its invasion of Ukraine, is unlikely to keep its promise to extend production cuts. Further, it could also reignite inflation, which is likely to curb global consumption and prompt central banks to hike interest rates further. This would put additional pressure on the global economy and thus reduce oil demand.
Saudi Arabia's announcement to voluntarily curb its crude production in addition to OPEC+ output cuts is a prudent precautionary measure to improve market stability given the faltering global economy, the banking crisis, and the ill-considered price cap on Russian oil. Moreover, money printing by Western countries in recent years has fueled inflation and lowered the US dollar's value — forcing major oil-producing countries to take action to protect the US dollar-based value of their most important export.
There is a 30% chance, that oil exports will count for less than 70% of Saudi Arabian exports in Q1 2024, according to the Metaculus prediction community.