The recent announcement from Saudi Arabia that it would be cutting back on oil exports has raised some eyebrows in both the energy industry and political sphere.
The implications this could have for countries heavily reliant on oil imports and what it signals about the state of the world economy are disturbing.
At a press briefing, Saudi Energy Minister Abdulaziz bin Salman referred to the reduction as a “lollipop” and stated that they “will do whatever is necessary to bring stability to this market.”
While there are hopes that these cuts will result in an increase in oil prices, Jorge Leon, senior vice president of oil markets research at Rystad Energy, warned that gas prices may become slightly more expensive due to this decision.
There is much uncertainty around petroleum consumption in upcoming months as OPEC+ members have agreed to extend production cuts through 2021.
This includes Saudi Arabia’s own cut of 1 million barrels per day set to begin in July with the possibility of being prolonged if deemed necessary.
It is believed by some that this decision was made partially due to their need for cash flow for ambitious development initiatives such as their $500 billion project called “Neom” which requires $80.90 per barrel of oil prices for them to achieve their projected expenditure obligations.
It appears that U.S authorities may be less concerned over OPEC cuts than previously given Biden’s recent decision to restock its Strategic Petroleum Reserve after declaring the largest release from national reserve in American history.
However, too-high oil prices can fuel inflation which could further impede economic growth across all nations dependent on imported oil including Europe whose overall inflation rate fell before Russia’s invasion of Ukraine thanks partly due to declining energy costs.
It has also been noted by some analysts that rising crude prices might also help support Russia financially which is attempting to reroute smuggled crude using “dark fleet” tankers as sanctions imposed by Western powers seek cutback Moscow’s key energy revenue sources such as India, China and Turkey who have become new consumers of Russian crude supplies following April’s declaration from OPEC+ pledging a sudden decrease of 1.6 million barrels per day with 500,000 coming from Russia alone who despite claiming they will maintain voluntary cuts into 2021 are exporting 8.3 million barrels per day according IMF April Oil Market report raising worries over whether Moscow will keep up its end of bargain or not.
While many people believe Saudi Arabia’s cut may ultimately lead toward price stability, no one can quite predict how long any effects would last or what kind of impact any changes might have on global economics.
According to the OPEC+ agreement, Russian Deputy Prime Minister Alexander Novak said Moscow will maintain its voluntary cut of 500,000 barrels per day into the following year.
However, it is possible that Russia will not keep its promise. According to the International Energy Agency’s April oil market report, Moscow’s overall exports of crude oil and refined goods like diesel gasoline increased to a post-invasion high of 8.3 million barrels per day in the month of April.
