Saudi Oil Production Cut: What You Need to Know

Justin Hopper September 5, 2023Last Updated: January 29, 2024

2 minutes read

Last Updated: 29.1.2024 15:36

In a move that sent ripples through the global oil market, Saudi Arabia has extended its voluntary crude oil production cut of 1 million barrels per day until the end of 2023.

This strategic decision not only impacts the kingdom’s own economy but also has far-reaching implications for investors worldwide.

The Saudi Decision: Extending the Oil Production Cut

Saudi Arabia has recently announced the extension of its voluntary crude oil production cut of 1 million barrels per day until the end of 2023. This move is expected to keep Saudi crude output near 9 million barrels per day over the last quarter of the year. Initially implemented in July, the cut has been extended on a monthly basis and adds to other voluntary output declines by OPEC members.

The Global Impact: Oil Prices and Market Dynamics

The Saudi decision comes at a time when oil prices have been fluctuating. After remaining below $75 per barrel for most of the first half of the year, global futures prices surged by more than $10 per barrel over the summer. This was influenced by various factors, including security risks in OPEC member Gabon and potential disruptions in the Gulf of Mexico due to Hurricane Idalia.

ALSO READ: OPEC Slashing its Oil Production Despite Pressure From Biden Administration

Russia Joins the Game: The OPEC+ Coalition

Russia, another heavyweight in the oil industry, has also pledged to voluntarily reduce its exports. The country has committed to a 300,000 barrels-per-day reduction until the end of December 2023. This move is part of the OPEC+ coalition, where Russia collaborates with OPEC nations to manage oil production and prices.

Economic Juggling: Saudi Arabia’s Crude-Reliant Economy

Saudi Arabia faces a complex challenge. On one hand, the country is implementing oil production cuts; on the other, its economy heavily relies on crude oil revenues. These revenues are crucial for Saudi Arabia’s ambitious “giga-projects” aimed at diversifying its economy. The cuts have already led to a slowdown in Riyadh’s GDP growth, which is a concern for investors.

The Future Outlook: Supply Tightness and Demand Recovery

The International Energy Agency expects an increasing supply tightness in the second half of 2023, particularly as demand recovers in China, the world’s largest crude importer. For investors, this could mean potential opportunities in the oil market, but it also suggests the need for a diversified investment strategy.