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Saudi Arabia’s Actions to Steady Oil Prices by Reducing Production

Saudi Arabia, as the leader of OPEC Plus, has announced additional production cuts to address the decline in oil prices. This article discusses the negotiations, impact on the market, and long-term goals of the country in simpler terms.

Saudi Arabia has decided to reduce the amount of oil it produces in order to deal with the ongoing drop in oil prices. As part of a group called OPEC Plus, which includes major oil-producing countries, Saudi Arabia is taking action to make the market more stable. The plan is to cut production for a month starting in July, and they may continue with the cuts if needed.

Even though there have already been two big cuts in oil production since October, oil prices have still been going down by around 15 percent in the past seven months. This has put pressure on OPEC Plus, which includes Russia and its allies, to reach an agreement that can change the negative mood in the oil market.

After a lot of discussions, the countries in the group agreed to make some changes to their production levels. Saudi Arabia is planning to cut an additional one million barrels a day, while Russia had already said it would reduce production by 500,000 barrels a day back in February.

During the news conference after the meeting, some people were doubtful about whether Russia would really follow the agreed production levels. Russia’s high production levels and increasing market share in Asia, especially in countries like India, have become sensitive topics within the group.

The most important part of the agreement, in terms of its impact on the market, is Saudi Arabia’s extra production cut. This will bring their daily output to about nine million barrels. The Saudi oil minister, Prince Abdulaziz bin Salman, called this move “the Saudi lollipop” during the announcement.

Even though Prince Abdulaziz was the only one to agree to the cuts right away, he might have gotten some long-term advantages. The agreement tries to deal with long-standing differences that have made it hard to understand why certain decisions about production were made in OPEC Plus. Some countries, like Nigeria and Angola, have had trouble meeting their targets because they didn’t invest enough and had other issues, so their quotas will be reduced starting in 2024. On the other hand, the United Arab Emirates, which has been spending a lot of money to increase its oil production, will get to produce 200,000 more barrels a day starting in 2024. This is a big win for the UAE, which has wanted to produce more oil and even had a public argument with Saudi Arabia in 2021 and considered leaving OPEC.

It’s not surprising that discussing production quotas led to a meeting that went on late into the night in Vienna, considering how important oil is for the economies of these countries.

Experts think that this agreement tries to solve long-standing problems within the group and will have a real impact on the market once people fully understand the details.

The recent meeting happened just two months after OPEC Plus announced previous production cuts, so there wasn’t much time for those cuts to affect the market. Analysts also think that the drop in oil prices since mid-April is because of other economic factors, like China’s weaker-than-expected growth after they relaxed their strict COVID policies. These factors might lessen the impact of the production cuts.

It’s worth noting that Saudi Arabia announced the production cuts at the same time as the upcoming visit of U.S. Secretary of State Antony Blinken, who is going to have talks with Saudi leaders. Under the leadership of Crown Prince Mohammed bin Salman, Saudi Arabia has been very active in its oil policies, aiming to keep oil prices higher so they have more money to fund their ambitious plans for the country’s development.

Even though OPEC doesn’t openly say what prices they want and focuses on the long term, analysts think that Saudi Arabia doesn’t want the price of Brent crude oil to go below $80 per barrel. Since OPEC Plus makes up more than 40 percent of the world’s oil supply, the group has a lot of power to influence the market if they decide to use it.

Previous cuts in oil production led by Saudi Arabia caused tension with the Biden administration, which wants to keep oil prices low to help American drivers and avoid more problems for the global economy, which is already weakened by different factors.

By taking more steps to make oil prices stable, Saudi Arabia hopes to create a more balanced market that benefits both the people producing oil and the people using it in the long term.

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