Saudi Arabia and Russia announced on July 3, 2023, that they would be cutting oil production in an attempt to boost prices. Saudi Arabia will be cutting production by 1 million barrels per day, while Russia will be cutting production by 500,000 barrels per day. These cuts will come into effect in August 2023.
The decision to cut production was made in response to concerns about weakening demand for oil. The global economy is slowing down, and this is leading to lower oil consumption. As a result, oil prices have been falling in recent months.
The cuts by Saudi Arabia and Russia are an attempt to prop up oil prices. By reducing the amount of oil that they are pumping into the market, they hope to create a shortage and drive up prices. This would benefit both countries, as they are major exporters of oil.
There are a few reasons why both countries decided to cut their oil production. The most obvious reason is to boost oil prices. Oil prices have been falling in recent months due to concerns about the global economy. By cutting production, Saudi Arabia and Russia hope to create a shortage and drive up prices. Furthermore, Saudi Arabia and Russia want to maintain their market share. They are the two largest oil producers in the world. They are concerned that if they do not cut production, other countries will increase their output and take away their market share. Lastly, they both decided to cut their oil production to protect their economies. Indeed, Saudi Arabia and Russia are both heavily dependent on oil exports. By cutting production, they hope to protect their economies from the effects of falling oil prices.
Russia’s Deputy Prime Minister Alexander Novak said that his country would voluntarily cut supplies by 500,000 barrels per day in August by cutting exports. Reuters reported, citing Novak’s office, that Russia would reduce production by that amount, deepening a cut of the same size Moscow implemented in March.
The announcements sent prices for Brent crude, the global oil benchmark, up to 0.7% at $76 a barrel. Oil prices have fallen by more than 40% since March last year, when they hit a 14-year high in the wake of Russia’s full-scale invasion of Ukraine.
“This additional voluntary cut comes to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets,” said the Saudi Press Agency.
The voluntary reductions come on top of earlier cuts that the OPEC oil cartel, led by Saudi Arabia, and allied producers, led by Russia, agreed to extend through next year. But they have given little lasting boost to oil prices, helping U.S. drivers fill their tanks more affordably during the busy summer travel season and providing consumers worldwide some relief from inflation, according to AP News.
It is not clear how effective the cuts will be. The global economy is still facing a number of challenges, and it is possible that demand for oil will continue to fall. However, the cuts could help to stabilize oil prices in the short term.
It is important to note that the cuts by Saudi Arabia and Russia are not the only factors that will affect oil prices. The global economy, supply and demand, and other factors will also play a role.