Global oil prices are soaring due to Saudi Arabia’s indication of further decreasing its oil supply. Following its decision to trim production by one million barrels per day in September, thereby extending August’s voluntary cut for another month, the oil-rich nation is seen as putting pressure on the global market.
This manoeuvre is reportedly driven by Crown Prince Mohammad bin Salman’s ambition to offset the high borrowing costs in Saudi Arabia, which are straining funds for major ventures such as the $500 billion Neom region development.
Echoing Saudi Arabia’s move, Russia, under Deputy Prime Minister Alexander Novak, revealed plans to lower oil exports by 300,000 barrels daily in September, following August’s reduction of 500,000 barrels per day – approximately 5% of Russia’s oil production.
This supply cut caused a jump in the price of Brent crude from $82.46 per barrel to $83.63, reflecting market adjustments to the dwindling supply.
Chief Commodities Economist at Capital Economics, Caroline Bain, said, “Saudi is very eager for prices at $80 or more, primarily for fiscal purposes and for funding large projects like Neom.”
Despite Russia’s reduced exports, it is implementing these cuts at a lesser magnitude compared to earlier in the year, suggesting that the ongoing conflict in Ukraine is impacting Russia economically.
Bain remarked, “Russia appears to be placating Saudi Arabia by showing unity, but their main goal is to maximize their oil sales.”
Capital Economics predicts oil prices to reach $85 by year-end, with demand greatly surpassing supply in H2 due to the Saudi-led cutbacks, which are expected to counterbalance a slowdown in global economic growth, Bain explained.
The latest data reveals that the US recorded a historic reduction of 17 million barrels per day from its crude reserves last week. Bain said, “This indicates stable demand. It seems like higher prices are on the horizon.”
In a separate geopolitical decision targeted against the West, Russia’s Prime Minister Mikhail Mishustin said on Thursday that Russia might provide more affordable grain exports to countries that haven’t enforced sanctions.
According to Mishustin, the Russian government may reduce duties on exports, including grain and fertilizers, to “friendly” countries. This follows the spike in global wheat prices caused by Russia’s attacks on Ukrainian grain.
