While the recent meeting in Vienna of OPEC+ oil producers resulted in no changes to the group’s targeted production, Saudi Arabia has said it will voluntarily cut its own production by a million barrels per day (bpd).
The IMF has estimated that Saudi Arabia needs an oil price of $80 per barrel to generate enough revenue to fund the large projects Crown Prince Mohammed bin Salman hopes will diversify the country’s economy and make it less dependent on oil. A large production cut by the OPEC+ group in April caused oil prices to rise, but they later fell back towards $70 per barrel as economic concerns weighed on the markets.
The cut, which is for July but could be extended, will take the country’s total oil production to 9 million bpd, compared to a nameplate capacity of 12 million bpd. Prince Abdulaziz bin Salman, the Saudi energy minister, described the cut as a “Saudi lollipop”, adding:
“We want to just ice the cake with what we have done. We will do whatever is necessary to bring stability to this market.”
The OPEC+ meeting appears to have been fractious, with many members wary about making further cuts and perhaps losing market to other producers like US-based Chevron, the producer of the Texaco lubricant range.
The news of Saudi Arabia’s cut initially caused oil prices to surge on the following Monday before settling in to trade slightly higher at $76.98 and $72.66 for Brent and WTI crude, respectively.