Saudi Arabia to cut oil production by 1 million barrels/day starting July due to price plunge

Saudi Arabia has said that it will reduce its oil supply to the global economy by one million barrels per day, beginning July. By this, the output from the Kingdom will reduce to 9 million barrels per day from around 10 million barrels in May. In April, Saudi announced a cut of 5 hundred thousand barrels per day. Saudi Arabia's maximum output capacity is 12 million barrels per day.

This comes as the OPEC+ alliance of major oil-producing countries faces plunging oil prices and a looming excessive supply, even after taking voluntary cuts in April. On 3rd April, several producers of the oil cartel had said that the oil production will decline by 1.66 million barrels per day until the end of this year. The OPEC group's collective production targets were adjusted to 40.5mn barrels a day for 2024. After this cut, the prices briefly rallied towards $90 per barrel. However, it fell to $70 per barrel at one stage last week.

As per IMF, Saudi Arabia requires the prices to be above $80 a barrel to balance its budget and fund some of the “giga-projects” that Crown Prince Mohammed bin Salman hopes can transform its economy.

After seven hours of talk the OPEC countries and its allies led by Russia, agreed on lowering the production target from 2024 by a further total of 1.4 million barrels per day. This comes as the two earlier production cuts by the OPEC countries failed to push the price up.

“This is a grand day for us, because the quality of the agreement is unprecedented,” Saudi Energy Minister Abdulaziz bin Salman said in a news conference, adding that the new set of production targets is “much more transparent and much more fair”. He also mentioned that the cut by Saudi could extend beyond July if needed.

The rest of the oil producers have agreed to extend the production cut in supply through the end of 2024.

As per Reuters, Russian deputy Prime Minister, Alexander Novak has said that Russia will extend its oil production cut by 5 hundred thousand barrels per day until the end of December 2024.
While, the group lowered the targets for Russia, Nigeria and Angola, UAE was allowed to raise the output.

The oil prices on Monday rose after the announcement of voluntary cuts. Global benchmark Brent futures were last trading up 1.43% at $77.22 a barrel during early Asia trade, while U.S. West Texas Intermediate futures rose 1.5% to $72.86 per barrel. OPEC+ pumps around 40% of the world’s crude, making its policy decisions have a major impact on oil prices.