Key Takeaways:
- Saudi Arabia will make a deep cut to its output in July.
- OPEC+ holds approximately 40% of the world’s crude oil production.
- Increased oil prices could have geopolitical implications, as higher prices negatively impact countries that rely heavily on oil imports.
WISCONSIN (CoinChapter.com) — Saudi Arabia will make a deep cut to its output in July on top of a broader OPEC+ deal to limit supply into 2024 as the group seeks to boost flagging oil prices. Saudi’s energy ministry said the country’s output would drop to 9 million barrels per day (bpd) in July from around 10 million bpd in May, the biggest reduction in years.
The Power and Influence of OPEC+
OPEC+ holds approximately 40% of the world’s crude oil production.
They are a powerful coalition of oil-producing countries, consisting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia. As a major player in the global oil market, OPEC+ can either stabilize or unsettle oil prices by adjusting their production levels.
In April, OPEC+ made a surprise decision to cut oil supply, which led to an almost $9 increase in international benchmark Brent crude prices. This move demonstrated the potency of OPEC+ in the oil market and their potential to manipulate prices in their favor.
It is worth noting that while the output target for 2024 is 40.46 million bpd, the United Arab Emirates (UAE) has been allowed to increase its baseline by 200,000 bpd. Although the UAE is still expected to make voluntary cuts, it can produce oil from a higher baseline, potentially offsetting some of the impacts of Saudi Arabia’s output reduction.
Additional Voluntary Cuts and Extensions
Saudi Arabia’s energy ministry has also announced that Riyadh will implement an additional voluntary one-month cut of 1 million barrels per day starting in July.
This cut can be extended if necessary and would bring the kingdom’s total voluntary declines to 1.5 million barrels per day over the period. As a result, Saudi Arabia’s production would be reined into just 9 million barrels per day.
These additional voluntary cuts indicate Saudi Arabia’s determination to support oil prices and stabilize the market.
However, the effectiveness of these measures will depend on the willingness of other OPEC+ members to implement similar cuts. If other major oil producers fail to follow Saudi Arabia’s lead, the impact of these voluntary cuts could be diminished.
On the other hand, if other OPEC+ members agree to cut their production levels, this could significantly reduce the global oil supply.
This would likely result in higher oil prices, which could provide a much-needed boost to the struggling oil industry. However, it remains to be seen whether other OPEC+ members will be willing to make such sacrifices to support oil prices.
Importance of Cooperation Within OPEC+
For the group’s efforts to be effective, members must be willing to put aside their interests in favor of the greater good.
This means agreeing to production cuts, even when it may be economically challenging for individual countries. OPEC+ has the potential to impact the global oil market significantly. The group could influence prices and help stabilize an industry plagued by volatility in recent years.
The next OPEC+ meeting approaches will be crucial to maintain a united front in the face of global economic challenges. OPEC+ can successfully boost oil prices and support the struggling industry.
Impact on Consumers and the Global Economy
Increased oil prices could have geopolitical implications, as higher prices negatively impact countries that rely heavily on oil imports. This could increase tensions between oil-producing and oil-consuming nations, potentially destabilizing a fragile global economy.
Ultimately, the success of OPEC+’s efforts to boost oil prices will depend on its ability to balance the needs of the oil industry. So, the group broadens the economic and geopolitical implications of its actions.
