Saudi Arabia Extends Oil Supply Cuts in Bid to Bolster Prices

Saudi Arabia Extends Oil Supply Cuts in Bid to Bolster Prices

Saudi Arabia Extends Oil Supply Cuts in Bid to Bolster Prices

Saudi Arabia has announced its decision to prolong oil supply cuts until the end of the second quarter of 2024, continuing the voluntary reduction of one million barrels per day initiated in July 2023. The official Saudi Press Agency (SPA) reported that these cuts would be gradually reversed based on market conditions to support stability.

Saudi Arabia Extends Oil Supply Cuts:Global Coordination on Production Cuts

The extension comes as part of a coordinated effort with some OPEC+ participating countries, the 23-member bloc co-led by Riyadh and Moscow. This move is paralleled by Russia’s announcement on the same day, revealing its plan to reduce production by almost half a million barrels in the second quarter of 2024.

Saudi Arabia Extends Oil Supply Cuts:Saudi Arabia’s Strategic Production Decision

Riyadh initially declared these voluntary cuts after an OPEC+ meeting in June 2023, responding to a surprise decision by several OPEC+ members in April 2023 to slash production by over one million barrels per day. The current extension means Saudi Arabia’s production will remain around nine million barrels per day, significantly below its capacity of 12 million barrels per day.

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Saudi Arabia Extends Oil Supply Cuts:Challenges and Vision 2030

Crown Prince Mohammed bin Salman, the de facto ruler of Saudi Arabia, is relying on oil revenue to fund Vision 2030, an ambitious economic and social reform agenda aimed at positioning the Gulf kingdom for a post-oil future. Despite the commitment to achieving net zero carbon emissions by 2060, skepticism from environmental activists persists.

Saudi Arabia Extends Oil Supply Cuts:Aramco’s Energy Transition and Market Dynamics

Saudi energy giant Aramco, central to the country’s economy, aims for “operational net-zero” carbon emissions by 2050. The company’s shift towards other energy forms, such as gas and renewables, is part of the broader energy transition. Aramco’s decision to maintain production capacity at 12 million barrels per day, abandoning the 13 million bpd target by 2027, aligns with the transition rationale.

As Saudi Arabia grapples with fluctuating oil prices, maintaining a cautious approach to production aligns with predictions by Riyadh-based firm JadwaInvestment. Analysts suggest that the country is likely to keep oil production in check due to a weak demand outlook, projecting Brent Crude to sell for $81 per barrel in 2024. Despite budgetary challenges and deficits forecasted until 2026, Riyadh remains committed to its reform initiatives.