Saudi Arabia, Russia Cut Oil Supply in Order to Raise Prices
Saudi Arabia and Russia have taken measures to reduce their oil production in an effort to stabilize prices and increase revenue. Despite a weakened global demand due to the economic downturn, these two major oil-producing countries are actively seeking ways to bolster their income from fossil fuels.
Following the announcement of a significant output reduction by Saudi Arabia for July, concerns were raised regarding the potential increase in gasoline prices for U.S. drivers. The Saudi Energy Ministry decided to extend the production cut of 1 million barrels per day throughout August to maintain the stability and balance of oil markets, keeping the nation’s output at 9 million barrels per day.
Similarly, Russia’s Deputy Prime Minister, Alexander Novak, revealed that the country would further decrease its production by 500,000 barrels per day in August, as reported by Russian news sources. These voluntary reductions supplement the previously agreed-upon cuts by the OPEC oil cartel, led by Saudi Arabia, and allied producers, led by Russia, which are set to continue into the following year.
Despite these efforts, the impact on oil prices has been limited, providing relief to consumers worldwide and enabling U.S. drivers to fill their tanks more affordably during the busy summer travel season. The average price of gasoline in the U.S. stands at $3.53 per gallon, a decrease of $1.28 compared to the previous year. Benchmark U.S. crude experienced a modest increase on Monday to $71.41 per barrel, while international standard Brent crude rose to $76.11 per barrel before retracing some of those gains.
The decision of Saudi Arabia to implement additional cuts highlights the uncertain future for fuel demand, even as travel begins to recover. While the U.S. recently recorded a record high in airline passengers during the Fourth of July weekend, concerns about economic weakness persist in both the U.S. and Europe, and China’s rebound from COVID-19 restrictions has not been as robust as anticipated. These production cuts are essential for Saudi Arabia to sustain high oil revenue to support its ambitious development projects, while Russia aims to increase profits to finance its ongoing conflict with Ukraine.
Western sanctions have forced Russia to sell its oil at a discount to countries such as China and India, resulting in a decline in estimated export revenue. In May, export revenue fell by $1.4 billion to $13.3 billion, a 36% decrease compared to the previous year, according to the International Energy Agency.
Russia’s August output will be reduced by a total of 1 million barrels per day when combined with previous cuts, although it fell short of its promised half-million barrel reduction in May.
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