Saudi Aramco engineers walk in front of a gas turbine generator at the Khurais oil field during a tour for journalists, 150 kilometers northeast of Riyadh, Saudi Arabia on June 28 year 2021.
Amr Nabil/AP
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Amr Nabil/AP
Saudi Aramco engineers walk in front of a gas turbine generator at the Khurais oil field during a tour for journalists, 150 kilometers northeast of Riyadh, Saudi Arabia on June 28 year 2021.
Amr Nabil/AP
DUBAI, United Arab Emirates – Saudi Arabia and other major oil producers on Sunday announced surprise cuts totaling 1.15 million barrels per day from May to the end of the month. year, a move that could drive up prices worldwide.
Higher oil prices will help fill Russian President Vladimir Putin’s coffers as his country goes to war with Ukraine and force Americans and others to pay more for pumps amid inflation across the globe. world.
It is also likely to further strain relations with the United States, which has called on Saudi Arabia and other allies to increase output as they try to lower prices and squeeze Russia’s finances.
Kevin Book, chief executive officer of Clearview Energy Partners LLC, said production cuts alone could push up US gasoline prices by about 26 cents a gallon, in addition to the usual increase that occurs when refineries change. change the gasoline mixture during the summer driving season. The Department of Energy calculates an average seasonal increase of 32 cents per gallon, Book said.
So with average US prices currently sitting at around $3.50 a typical gallon, according to AAA, that could mean gasoline above $4/gallon during the summer.
However, Book says there are some complex variables in oil and gas prices. The size of each country’s output cut depends on the base production figures that country is using, so the cut may not be 1.15 million. It can also take years for the cuts to take effect. Demand could drop if the US falls into a recession due to a banking crisis. But it can also increase during the summer when more people travel.
Even though production cuts represent only about 1 percent of the roughly 100 million barrels of oil the world uses each day, the impact on prices could be huge, says Book.
“It’s a big deal because of the way oil prices work,” he said. “You’re in a relatively balanced market. You take away a small amount, and depending on demand, you can have a very significant price reaction.”
Saudi Arabia announced the largest cut among OPEC members at 500,000 barrels per day. Additional cuts to the reduction announced last October that infuriating the Biden administration.
The Saudi Energy Ministry described the move as a “precautionary measure” aimed at stabilizing the oil market. The cuts account for less than 5% of Saudi Arabia’s average production of 11.5 million barrels per day in 2022.
Iraq said it would reduce output by 211,000 barrels per day, the United Arab Emirates by 144,000, Kuwait by 128,000, Kazakhstan by 78,000, Algeria by 48,000 and Oman by 40,000. The announcements are made by the state media of each country.
Meanwhile, Russian Deputy Prime Minister Alexander Novak said Moscow would extend the voluntary cuts of 500,000 until the end of the year, according to remarks by the state news agency Tass. Russia has announced unilateral cuts in February after Western countries imposed price ceilings.
All are members of the so-called OPEC+ group of oil exporting countries, which includes the Organization of the Original Petroleum Exporting Countries as well as Russia and other major producers. There was no immediate statement from OPEC itself.
The cuts announced in October — about 2 million barrels a day — came on the eve of the US midterm elections, where soaring prices were a big deal. President Joe Biden at the time vowed there would be “consequences” and Democratic lawmakers called for a freeze on cooperation with the Saudis.
Both the US and Saudi Arabia deny any political motive in the dispute.
Since the cuts, oil prices have been on a downward trend. Brent crude, the global benchmark, traded around $80 a barrel late last week, down from around $95 in early October, when previous cuts were agreed.
Analysts Giacomo Romeo and Lloyd Byrne at Jefferies said in a research note that the new cuts would allow for a “raw” reduction in OPEC inventories earlier than expected and could be validated. Recent warnings from some traders and analysts that oil demand is weakening.
Kristian Coates Ulrichsen, a Gulf expert at Rice University’s Baker Institute for Public Policy, said the Saudis are determined to keep oil prices high enough to finance ambitious large projects involving Crown Prince Mohammed bin Salman. Vision 2030 plan to overhaul the economy.
“This domestic interest takes precedence in Saudi decision-making in relation to international partners and is likely to remain a point of friction in US relations,” he said. Saudi Arabia in the near future.”
Saudi Arabia’s state-owned oil giant Aramco recently announced record profit of $161 billion from last year. Profits are up 46.5% from the company’s 2021 results of $110 billion. Aramco said it hopes to increase production to 13 million bpd by 2027.
The decades-long US-Saudi alliance has become increasingly tense in recent years 2018 murder of Saudi dissident Jamal Khashoggia journalist living in the US, and Saudi Arabia’s war with Iran-backed Houthi rebels in Yemen.
As a presidential candidate, Biden vowed to make Saudi Arabia the “underdog” in the murder of journalist Jamal Khashoggi, but when oil prices spiked after his inauguration, he backed out. He visited the kingdom last July in an attempt to mend relations, criticized for share a handshake with Crown Prince Mohammed.
Saudi Arabia has denied siding with Russia in the war in Ukraine, even as it has built closer ties with both Moscow and Beijing in recent years. Last week, Aramco announced billions of dollars of investment in China’s downstream petrochemical industry.
