Saudi Arabia takes risks by raising oil prices

Oil is a highly volatile market, and Saudi Arabia reigns supreme. A heavyweight in the Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia announced on Sunday, June 4 that it intends to reduce the rate of oil production. The aim of this maneuver is to boost low oil prices, against an economic backdrop overshadowed by the war in Ukraine.

Prince Abdelaziz ben Salmane has announced a voluntary reduction of around one million barrels per day, which will apply from July and may be extended. The announcement came at the end of a meeting in Vienna of the thirteen members of OPEC and their ten allies, led by Russia. Between them, the 23 participants (Opep+) account for 60% of the world’s black gold production. This additional cut will be added to the cuts already introduced by nine countries at the beginning of May and “extended until the end of 2024” for a total of 1.6 million barrels a day. A gesture welcomed by the Saudi Energy Minister. In front of the press, Abdelaziz ben Salmane said it would “bring stability” to the black gold market, where prices are at half-mast. A measure he went so far as to describe as a “Saudi treat”, the “icing on the cake”.

usines avec de la fumée sous un ciel nuageux

As a result, with a further reduction in throughput by all 23, which was not an option, so divergent were opinions on the subject, according to the Bloomberg agency’s account. Thus, despite its commitments, Russia was reluctant to further tighten the floodgates on the production it uses to finance its military offensive against Ukraine. Especially as Moscow has little interest in seeing oil prices rise. As a result of Western sanctions, only Russian oil priced at $60 or less can continue to be delivered. Above this ceiling, companies are forbidden to provide the services required for sea transport. Conversely, Saudi Arabia “needs higher prices to balance its budget”, as Commerzbank’s Barbara Lambrecht explained to AFP. “We haven’t had any disagreements. This is a joint decision taken in the interests of the market”, assured Alexander Novak, Russia’s Deputy Prime Minister.

The market is very uncertain and black gold prices have plummeted in recent months, despite a previous announcement in early April of drastic cuts. This strategy, launched in the spring, failed to lift prices in a market depressed by fears of global economic recession, rate hikes by the main central banks and the laborious recovery of demand in China following the end of anti-Covid restrictions. And what about this time? Asked by AFP, analysts say they expect “a positive reaction from the market”, without however guaranteeing such results in the long term. Tamas Varga of PVM Energy warns that “a downturn in demand due to inflationary pressure could cancel out the effect of this reduction in supply”. The alliance has already warned that it will call an emergency meeting “if necessary”.

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Saudi Arabia takes risks by raising oil prices

Home » Saudi Arabia takes risks by raising oil prices

Oil is a highly volatile market, and Saudi Arabia reigns supreme. A heavyweight in the Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia announced on Sunday, June 4 that it intends to reduce the rate of oil production. The aim of this maneuver is to boost low oil prices, against an economic backdrop overshadowed by the war in Ukraine. Prince Abdelaziz ben Salmane has announced a voluntary reduction of around one million barrels per day, which will apply from July and may be extended. The announcement came at the end of a meeting in Vienna of the thirteen members of OPEC and their ten allies, led by Russia. Between them, the 23 participants (Opep+) account for 60% of the world's black gold production. This additional cut will be added to the cuts already introduced by nine countries at the beginning of May and "extended until the end of 2024" for a total of 1.6 million barrels a day. A gesture welcomed by the Saudi Energy Minister. In front of the press, Abdelaziz ben Salmane said it would "bring stability" to the black gold market, where prices are at half-mast. A measure he went so far as to describe as a "Saudi treat", the "icing on the cake".

As a result, with a further reduction in throughput by all 23, which was not an option, so divergent were opinions on the subject, according to the Bloomberg agency's account. Thus, despite its commitments, Russia was reluctant to further tighten the floodgates on the production it uses to finance its military offensive against Ukraine. Especially as Moscow has little interest in seeing oil prices rise. As a result of Western sanctions, only Russian oil priced at $60 or less can continue to be delivered. Above this ceiling, companies are forbidden to provide the services required for sea transport. Conversely, Saudi Arabia "needs higher prices to balance its budget", as Commerzbank's Barbara Lambrecht explained to AFP. "We haven't had any disagreements. This is a joint decision taken in the interests of the market", assured Alexander Novak, Russia's Deputy Prime Minister.

The market is very uncertain and black gold prices have plummeted in recent months, despite a previous announcement in early April of drastic cuts. This strategy, launched in the spring, failed to lift prices in a market depressed by fears of global economic recession, rate hikes by the main central banks and the laborious recovery of demand in China following the end of anti-Covid restrictions. And what about this time? Asked by AFP, analysts say they expect "a positive reaction from the market", without however guaranteeing such results in the long term. Tamas Varga of PVM Energy warns that "a downturn in demand due to inflationary pressure could cancel out the effect of this reduction in supply". The alliance has already warned that it will call an emergency meeting "if necessary".