Saudi Arabia will extend a cut in the amount of oil it sends to the world after a series of previous reductions by members of the OPEC+ alliance of major producing countries failed to prop up prices.
That’s been a good thing for U.S. drivers, who have been able to fill their gas tanks for less money in recent months. But it’s bad news for OPEC+ countries whose oil income bolsters their economies and who have faced setbacks in pushing prices higher despite initial fears that the Israel-Hamas war could affect oil flows.
The Saudi Energy Ministry said in a statement on its website that its voluntary cut of one million barrels per day will stay in place through the first three months of next year. It had been due to expire after the end of the year and comes on top of other sweeping cuts made by OPEC+ and individual countries.
The reductions have not made lasting changes to oil prices because of concerns about oversupply in a weakening global economy, which could weigh on the thirst for oil for travel and industry.
Saudi Arabia’s announcement came after the OPEC oil cartel and allied nations like Russia met in an online meeting about global oil production — the same day the U.N. climate conference kicks off in the United Arab Emirates, an OPEC member.
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The coalition announced that Brazil will join the OPEC+ bloc in January, bringing one of the world’s fastest-growing oil producers into the alliance as it tries to rein in global oil supply. Jose Chrispiniano, press secretary for President Luiz Inacio Lula da Silva, said the invitation was under analysis.
The OPEC+ ministers set quotas for Angola, Congo and Nigeria after they postponed their meeting originally set for Sunday by four days. There was no immediate word on reductions from other member countries, including Russia, whose voluntary cut of 300,000 barrels per day lasts through the end of the year.
Russia wants more oil revenue as it faces Western sanctions but seeks to pour energy earnings into its war chest against Ukraine. The Saudis have to earn nearly $86 per barrel to meet their planned spending goals, according to the latest estimate from the International Monetary Fund.
The Saudis are trying to fund an ambitious overhaul of the kingdom’s economy, reduce its dependence on oil and create jobs for a young population.
But the international benchmark Brent crude has stayed in the low- to mid-$80 range in recent weeks, reflecting concerns about oversupply in a weakening global economy, which could weigh on the thirst for oil for travel and industry.
Brent fell more than two per cent to $80.91 a barrel following the OPEC+ meeting, while U.S. crude dropped 2.5 per cent to $75.90 a barrel in electronic trading on the New York Mercantile Exchange.
Lower oil prices have allowed U.S. gas prices to fall or stay steady since Sept. 19, AAA said. Gas is averaging just below $3.25 a gallon, the motor club said, down about seven per cent from a month ago.
But that’s still higher than when U.S. President Joe Biden took office in January 2021, when prices were averaging about $2.40 a gallon. High inflation has been a political challenge for Biden going into the 2024 election, prompting him to say Monday that efforts to improve supply chains and reduce price pressures are a priority.
U.S. oil production has hit records as OPEC+ has cut back, with producers outside the group expected to keep leading global growth in oil supply next year, the International Energy Agency said in its November oil report.
For instance, daily production in the U.S. averaged 13 million barrels a day in August, an increase of more than one million barrels from a year ago, according to the latest monthly figures from the U.S. Energy Information Administration.
Now, the risk is growing that Saudi Arabia’s production cuts could reduce OPEC’s influence over oil supplies as other countries boost their output.
“The kingdom is balancing the desire to keep prices high by limiting supply with the knowledge that doing so will lead to a further drop in overall market share,” said Jorge Leon, senior vice president of oil market research for Rystad Energy.
Meanwhile, fears the conflict between Israel and Hamas might spread throughout the region, creating a shock to the oil market, have not materialized, with the IEA noting that “there has been no material impact on oil supply flows from the war.”
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