In the face of apprehensions surrounding a potential worldwide economic downturn and potential interest rate increases by the US Federal Reserve, global oil prices experienced an increase on Monday. This upswing was attributed to the decision of Saudi Arabia and Russia, the largest oil-exporting nations globally, to extend their supply reduction efforts.
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Oil Prices Rise in Saudi Arabia and Russia
The authorities in Riyadh declared their intention to prolong the voluntary reduction in oil production by one million barrels per day (bpd) for an additional month, encompassing the month of August. They further indicated that this reduction might be extended beyond the aforementioned period.
Following the announcement by Saudi Arabia, Russian Deputy Prime Minister Alexander Novak stated that Moscow would reduce its oil exports by 500,000 barrels per day in the month of August. Oil Prices Rise in Saudi Arabia and Russia.
The combined reduction in oil production amounts to 1.5% of the global supply, with OPEC+ pledging a total of 5.16 million barrels per day in cuts.
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OPEC+ has already implemented cuts of 3.66 million barrels per day (bpd), which accounts for approximately 3.6% of global demand. These cuts include an agreement for 2 million bpd made last year, as well as voluntary reductions of 1.66 million bpd that were agreed upon in April and have been extended until December 2024.
Following the announcement of the production cuts, oil prices experienced an increase, with Brent crude rising by 89 cents to reach $76.30 per barrel as of 0950 GMT.
OPEC+, consisting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia, is responsible for approximately 40% of global crude oil production.
Since November of last year, the OPEC+ alliance has been implementing supply cuts in an effort to increase oil prices. These cuts were initiated due to lower demand from China and the increasing oil production in the United States. However, despite these efforts, oil prices have remained largely within the range of $70 to $80 per barrel.
According to an official source from the Ministry of Energy, Saudi Arabia’s oil production for the month of August 2023 is expected to be around 9 million barrels per day. This information was reported by the Saudi state news agency SPA.
Earlier this month, Saudi Arabia, the de facto leader of OPEC, had made a commitment to significantly reduce its oil production in July. This additional cut was part of the broader OPEC+ agreement to limit the supply of oil until 2024, as the group aimed to support and increase oil prices that were facing a decline.
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The official source from SPA stated, “This additional voluntary cut is intended to strengthen the precautionary measures taken by OPEC+ countries in order to support the stability and equilibrium of the oil markets.”
Russia, the world’s second-largest oil exporter, has committed to reducing its daily output by 500,000 barrels (bpd) from March until the end of the year. This move aims to bring its production down to 9.5 million bpd.