DUBAI, United Arab Emirates (AP) — Saudi Arabia and other significant oil producers on Sunday announced unexpected cuts of 1.15 million barrels per day from May until the end of the year, a move that might push up prices globally.
Increased oil prices would increase the wealth of Russian President Vladimir Putin while his nation fights the Ukraine conflict and force Americans and others to pay even more at the pump due to global inflation.
Also, it was anticipated to exacerbate tensions with the US, which has urged Saudi Arabia and other allies to raise output in an effort to drive down prices and pinch Russia’s finances.
Without specifically mentioning them, the Saudi Energy Ministry stated that its own daily cut of 500,000 barrels would be carried out in consultation with several OPEC and non-OPEC countries. The reductions are in addition to one made public in October of last year that enraged the Biden administration.
The ministry referred to the action as a “precautionary measure” designed to keep the oil market stable. The reductions amount to less than 5% of Saudi Arabia’s projected 11.5 million barrel daily average production in 2022.
The United Arab Emirates will cut production by 144,000 barrels per day, Kuwait by 128,000, Kazakhstan by 78,000, Algeria by 48,000, and Oman by 40,000. Iraq announced it would cut production by 211,000 barrels per day. The national media of each nation covered the announcements.
Russia will prolong its voluntary cut
According to comments reported by the official news agency Tass, Alexander Novak, Russia’s deputy prime minister, said Moscow will extend a voluntary decrease of 500,000 through the end of the year. As a result of price limitations implemented by Western nations, Russia had made the unilateral decrease announcement in February.
All belong to the so-called OPEC+ group of oil exporting nations, which also includes Russia and other significant producers in addition to the original Organization of the Petroleum Exporting Countries. OPEC itself did not issue a comment right away.
On the eve of the U.S. midterm elections, in which the subject of rising prices was a key one, the cuts of almost 2 million barrels per day that were announced in October. At the time, Democratic senators called for a freeze on cooperation with the Saudis, and President Joe Biden pledged that there would be “consequences.”
Oil costs have been declining.
Oil prices have actually trended down since those cuts. At the end of the previous week, Brent crude, a global benchmark, was trading at about $80 per barrel, down from about $95 per barrel in early October, when the initial cuts were decided.
The additional cutbacks could allow for “substantial” reductions in OPEC inventory earlier than anticipated, according to analysts Giacomo Romeo and Lloyd Byrne at Jefferies. They also may support recent warnings from certain traders and experts that the demand for oil is waning.
The Saudis are determined to keep oil prices high enough to finance a variety of ambitious mega-projects linked to Crown Prince Mohammed bin Salman’s Vision 2030 plan to overhaul the economy, according to Kristian Coates Ulrichsen, a Gulf expert at Rice University’s Baker Institute for Public Policy.
Even without accounting for the Russian aspect, he stated, “This internal interest takes primacy in Saudi decision-making over relationships with international partners” and is “certain to remain a point of contention in U.S.-Saudi relations for the foreseeable future.”
The U.S.-Saudi alliance is under increasing stress.
Aramco, the state-run oil company of Saudi Arabia, recently reported record profits of $161 billion from the previous year. In comparison to the company’s $110 billion in revenue from 2021, profits increased by 46.5%. By 2027, Aramco stated it wanted to increase production to 13 million barrels per day.
After the murder of Saudi dissident and writer Jamal Khashoggi in 2018 and Saudi Arabia’s disastrous war with Iran-backed Houthi rebels in Yemen, the decades-old U.S.-Saudi partnership has come under increasing strain recently.
Biden had threatened to declare Saudi Arabia a “pariah” over the murder of Jamal Khashoggi while running for president, but as oil prices increased following his inauguration, he changed his position. In an effort to mend fences, he paid the country a visit last July. Sharing a fistbump with Crown Prince Mohammed earned him some flak.