Oil prices spiked Monday morning, before giving back most of their gains, after Saudi Arabia announced plans to cut oil production by one million barrels per day in a bid to restrict global oil supply and boost markets, Reuters reported.
Brent crude — an international benchmark — and U.S. West Texas Intermediate crude climbed by roughly 0.7% and 0.55% at time of writing, falling from the approximately 2.5% surge seen earlier in the day, a significant but more tempered response than the massive upswing following Saudi Arabia’s production cuts in early April, Reuters reported. The move from Saudi Arabia came as part of a broader effort from the OPEC+ oil cartel, an economic bloc comprised of several Middle Eastern nations and Russia that produces roughly 40% of the world’s crude oil, to cut production and prop up oil prices in anticipation of a global economic slowdown driven by faltering manufacturing in China.
“Saudi [Arabia] remains keener than other members in terms of ensuring oil prices above $80 per barrel, which is essential for balancing its own fiscal budget for the year,” Suvro Sarkar, who heads the energy sector team at DBS Bank, told Reuters. Goldman Sachs analysts reportedly predicted that Brent prices could climb between $1 to $6 per barrel by December, depending on how long the Saudis maintained reduced production.
While Saudi Arabia’s allies in OPEC+ extended existing production cuts, the Middle Eastern kingdom was unable to convince its allies to join it in making additional reductions, facing particularly stiff resistance from African members of the bloc, The Wall Street Journal reported. Although OPEC production targets are usually agreed upon prior to official meetings, quickly receiving formal approval at such events, Sunday’s meeting grew heated as Russia and African members pushed to keep current production levels.
Russia has been selling large quantities of cheap oil to prop up its war economy, even as Western sanctions force the major oil exporter to export its products at a significant discount. U.S. oil and gas drillers have been shutting down oil drills in anticipation of a slowdown in the oil market.
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