BusinessEuropeGeneral NewsMoscowOPECPoliticsRussiaSaudi ArabiaU.S. NewsWorld News Saudi Arabia is slashing oil supply. It could mean higher gas prices for US drivers by Gabriel Martinez June 4, 2023 written by Gabriel Martinez June 4, 2023 6 comments Bookmark 61 Saudi Arabia has announced a reduction in its oil distribution to the international market, a unilateral decision aimed at supporting the falling price of crude oil. This move comes after two previous attempts by the OPEC+ alliance to bolster oil prices through supply cuts failed to yield the desired effect. The country plans to cut oil supply by 1 million barrels per day starting from July, a decision that was made concurrently with other OPEC+ producers’ agreement, reached in a meeting held in Vienna, to maintain existing production cuts until the end of the next year. Dubbed as a “lollipop” by Saudi Energy Minister Abdulaziz bin Salman at a press conference, the reduction is aimed to “ice the cake”, potentially indicating an extension of the cut to ensure market stability. Jorge Leon, the senior vice president of oil markets research at Rystad Energy, suggests that this new cut could temporarily raise oil prices. The long-term effect, however, depends on Saudi Arabia’s decision regarding the extension of the cut. The reduction in oil prices has been beneficial for US motorists, enabling them to refuel at lower prices and offering global consumers some respite from inflation. However, Leon warns that gas prices are unlikely to fall further, and could even marginally rise. The necessity for another supply cut signifies the unpredictable demand for fuel in the forthcoming months, with concerns around economic instability in the US and Europe, as well as a slower than expected recovery in China following the COVID-19 restrictions. Saudi Arabia, the leading producer in the OPEC oil cartel, had agreed to a surprise cut of 1.6 million barrels per day in April, of which its share was 500,000. This followed OPEC+’s announcement in October to reduce the supply by 2 million barrels per day, a decision that elicited criticism from US President Joe Biden due to the potential rise in gasoline prices before the midterm elections. Despite these cuts, oil prices have seen little permanent improvement. The Brent Crude, an international benchmark, peaked at $87 per barrel but has been oscillating below $75 per barrel recently. US crude prices have also fallen under $70. The reduced oil prices have been advantageous to US motorists as the summer travel season begins, with average fuel prices down to $3.55 per gallon, $1.02 lower than the previous year. Europe has also seen a decrease in inflation, reaching the lowest level since Russia’s invasion of Ukraine. Saudi Arabia requires a steady, high oil income to finance its development projects, aimed at diversifying the national economy. The International Monetary Fund estimates that the nation needs oil to be priced at $80.90 per barrel to fulfill its projected spending commitments, which include the $500 billion futuristic city project, Neom. However, the impact of higher prices on oil-consuming countries cannot be overlooked. Oil prices that soar too high can trigger inflation, depleting consumer purchasing power and pushing central banks like the US Federal Reserve towards more interest rate hikes, potentially dampening economic growth. The oil production cut from Saudi Arabia and any consequent increase in oil prices could boost the profits that Russia is using to finance its war against Ukraine. Yet, if crude prices exceed the $60-per-barrel price cap imposed by the Group of Seven major democracies, it might pose trade complications for Russia, the world’s third largest oil producer. Under the OPEC+ agreement, Russia has stated that it will maintain its voluntary cut of 500,000 barrels a day through the next year. However, there are doubts regarding Russia’s commitment, as the nation’s total exports of oil and refined products rose to a post-invasion high of 8.3 million barrels per day in April, according to the International Energy Agency. The contribution to this report was made by AP reporter Fatima Hussein from Washington. Table of Contents Frequently Asked Questions (FAQs) about Saudi Arabia Oil Supply CutWhy is Saudi Arabia reducing its oil supply?How much is Saudi Arabia cutting its oil supply by, and when will this take effect?What impact will this have on oil prices?How does this affect US drivers and consumers worldwide?What implications does this have on Saudi Arabia’s economy?Could this move have implications for other countries, like Russia?More about Saudi Arabia Oil Supply Cut Frequently Asked Questions (FAQs) about Saudi Arabia Oil Supply Cut Why is Saudi Arabia reducing its oil supply? Saudi Arabia is reducing its oil supply in an effort to prop up the price of crude oil, which has been sagging. This is a unilateral move by the country, taken after two previous supply cuts by the OPEC+ alliance did not have the desired effect of pushing up oil prices. How much is Saudi Arabia cutting its oil supply by, and when will this take effect? Saudi Arabia plans to cut its oil supply by 1 million barrels per day, starting in July. What impact will this have on oil prices? The oil supply cut by Saudi Arabia is likely to push up oil prices in the short term. However, the long-term impact will depend on whether Saudi Arabia decides to extend the cut. How does this affect US drivers and consumers worldwide? The reduction in oil prices had previously benefited US drivers and offered some relief from inflation to consumers worldwide. However, with the proposed supply cut, gas prices are not expected to fall further and could even rise slightly. What implications does this have on Saudi Arabia’s economy? Saudi Arabia requires sustained high oil revenue to finance its ambitious development projects, including diversifying the national economy. If oil prices increase as a result of this cut, it could potentially aid these initiatives. Could this move have implications for other countries, like Russia? Yes, any increase in oil prices due to Saudi Arabia’s production cut could add to the profits that Russia is using to finance its conflict with Ukraine. However, it could also complicate trade for Russia if crude prices exceed the $60-per-barrel price cap imposed by the Group of Seven major democracies. More about Saudi Arabia Oil Supply Cut Oil Price Dynamics Report OPEC and its Role in Oil Price Determination Saudi Arabia’s Economic Diversification Plans Understanding the Global Petroleum Market Impact of High Oil Prices on Global Economy You Might Be Interested In Understanding the Hajj Pilgrimage: Significance and Rituals for Muslims Termination of State Land Leases to Saudi-Owned Farm Over Groundwater Use Announced by Arizona Governor Ukrainian drones hit a Russian tanker near Crimea, Russia says, in the 2nd sea attack in a day Hajj pilgrimage starts in Saudi Arabia, with 2 million expected after lifting of COVID measures Record-High US Oil Production Clashes with Carbon Emission Reduction Efforts This year’s Hajj was held in sweltering heat, and for those serving pilgrims there was little relief Global Oil PricesOil Supply CutOPEC+Saudi ArabiaUS Gas Prices Share 0 FacebookTwitterPinterestEmail Gabriel Martinez Follow Author Gabriel Martinez is a science and technology journalist who covers the latest news and developments in the world of science. He is passionate about exploring new frontiers in technology, from artificial intelligence to space exploration. previous post Ukraine keeps up pressure following Russian declaration of victory in Bakhmut next post Transgender Adults in Florida Caught Off Guard by New Law Restricting Access to Healthcare You may also like Bookmark A woman who burned Wyoming’s only full-service abortion... December 28, 2023 Bookmark Argument over Christmas gifts turns deadly as 14-year-old... December 28, 2023 Bookmark Danny Masterson sent to state prison to serve... December 28, 2023 Bookmark Hong Kong man jailed for 6 years after... December 28, 2023 Bookmark AP concludes at least hundreds died in floods... December 28, 2023 Bookmark Live updates | Israeli forces raid a West... December 28, 2023 6 comments MikeTheDriver June 4, 2023 - 8:44 pm Man, not good news for us drivers! Hate to see gas prices going up again. Reply KarenInFinance June 4, 2023 - 8:44 pm Really puts into perspective how globally connected our economy is. What happens in Saudi Arabia can hit our wallets here! Reply JennyTheGreen June 4, 2023 - 8:44 pm Maybe this will push more people towards electric cars? We can only hope. Reply BobAtHome June 4, 2023 - 8:44 pm Wow, all this talk of cuts and prices makes my head spin. Guess it’s back to cycling for me… Reply EconGeek June 4, 2023 - 8:44 pm Interesting move by the Saudis. Will be keeping an eye on how this plays out in the global oil market. Reply SarahLovesTravel June 4, 2023 - 8:44 pm Ugh, there goes my road trip budget. These oil price swings are unpredictable. Reply Leave a Comment Cancel Reply Save my name, email, and website in this browser for the next time I comment. Δ