Saudi Arabia’s Ministry of Energy announced a voluntary cut of 1 million barrels per day into next year.
- The Ministry of Energy announced on Tuesday that it will extend oil cuts, which began in July, through December 2023, down to 9 million barrels per month.
- It says it will evaluate the oil market monthly to decide on additional cuts or increases as it aims to create greater stability and balance in the market.
- The cuts will contribute to OPEC’s ongoing 1.66 million barrels per day decrease.
- Russian Deputy Prime Minister Alexander Novak also announced that Russia will extend its 300,000 barrels per day reduction of exports too.
- Global Brent crude prices are increasing in response to $90 per barrel, CNN reports.
Why It’s Important
Saudi Arabia, Russia, and other OPEC nations—which produce 40% of global oil supplies—are highly dependent on oil exports, particularly with Russia seeking additional funding to continue its ongoing invasion of Ukraine after 19 months. As the International Monetary Fund notes, Saudi Arabia needs to keep barrel prices around $81 per barrel to avoid falling into a deficit as it diversifies its economy and builds new industries.
The continued cuts will likely contribute to increasing gas prices. As we previously reported, gas prices have hiked in the summer months due in part to OPEC’s July cuts. Labor Day weekend gas prices peaked at $3.83 per gallon, approaching the 2012 historic peak of $3.84—and additional price increases are expected, likely having a knock-on effect on the rest of the economy.
As we previously reported, the U.S. experienced its highest historic national gas price in history in June 2022 amid soaring inflation at 9.1%, with prices peaking at $5.02 per gallon.
“The recent upward trajectory in oil prices has laid the groundwork for potentially elevated [inflation] figures for August. These impending increases in oil prices present a fresh challenge for central banks as they continue their diligent efforts to bring inflation levels back in line with their desired targets,” says SPI Asset Management partner Stephen Innes.