Saudi Arabia announced a million-barrel-per-day (bpd) oil production cut on Sunday that would begin in July, a policy change following a meeting of the OPEC+ oil cartel in which several members failed to meet their production quotas and one — the United Arab Emirates (UAE) — announced a production increase.
Saudi Arabia’s officials have spent much of the past year warning that dropping oil prices could have a destabilizing effect on the world economy and hurt the Saudi government’s bottom line specifically. Riyadh has spearheaded multiple dramatic production cuts in the past year, including the shocking announcement that OPEC+ would collectively decrease production by two million bpds in October and a subsequent 1.16-million bpd oil cut in April. The latter cut will last through 2023.
Riyadh has insisted for much of the past year that production cuts are necessary due to decreased demand and the market turbulence caused by the Russian invasion of Ukraine, which, in turn, prompted much of the West to impose price caps on Russian oil. The reduced price of Russian oil has created a massive new market for Moscow in Saudi Arabia as well as India and China. While Saudi Arabia has ample indigenous oil deposits, reports indicate that its oil company Aramco is buying up Russian oil to sell for cheap at home while processing and selling Saudi oil abroad at a higher price.
Aramco posted record profits of $161.1 billion for 2022.
The Saudi news agency Al Arabiya reported that the OPEC+ meeting this weekend, which brings together OPEC cartel members and Russia, lowered production targets for 2024 by 1.4 million bpd, but the reduction did not only include cuts. Several nations — Russia, Nigeria, and Angola, most prominently — reduced their targets based on the fact that their current production would not allow them to reach their previously determined goals. Nigeria is one of the world’s most oil-rich countries, but its state-run petroleum company loses millions a year to illicit operations by criminal gangs. Nigeria is home to a bustling network of illegal refineries that process oil stolen through the illegal construction of pipelines to siphon oil out of the government’s pipeline system, then refine and sell it on the black market.
In addition to adjusting those targets, which do not change the actual oil output of the countries involved, OPEC+ agreed to allow the UAE to increase its production by 200,000 bpd.
Saudi Energy Minister Prince Abdulaziz bin Salman Al Saud described the deep Saudi production cut as a “lollipop” for the rest of OPEC+’s members — a sweetener that allows them to increase their profits while Saudi Arabia itself sells less oil. The cut would begin in July, but Abdulaziz told Al Arabiya in remarks published on Monday that the cut could continue beyond that month.
“We will continue [taking] precautionary measures as long as we don’t see clarity and stability in the market,” the energy minister said. “Our mission is to present the oil market with clear data in order to [maintain] stability.”
The decision appeared to spike fuel prices immediately, though with unclear long-term effects.
“Oil prices did initially spike on Sunday, with WTI nearing $74 and Brent climbing toward $78 before both falling back,” OilPrice.com reported on Monday. “Crude oil prices rose by more than 1% in early trade today following the OPEC+ meeting that took place Sunday.”
Middle East Eye noted that a similar rapid spike and dip occurred in April following the latest collective OPEC+ production cuts. “A surprise cut to oil prices in April resulted in oil rallying to $90, but prices again fell to nearly $70 a barrel at one stage last week.”
Saudi oil production has become an alienating issue for the kingdom’s ties to the United States under leftist President Joe Biden. Biden visited the country last summer for what has derisively come to be known as the “fist bump summit” — a meeting with Crown Prince Mohammed bin Salman featuring the informal greeting — and was widely believed to have urged Riyadh to increase oil production. Prior to his visit, Biden had condemned Saudi Arabia for the brutal killing of Islamist Washington Post contributor Jamal Khashoggi and vowed to turn the country into a “pariah” state.
Watch: Khashoggi Outrage Is Over! Biden Chummy with Saudi Crown Prince
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The White House ultimately confirmed that Biden urged Bin Salman to increase oil production before the November 2022 midterm elections, which would have lowered gasoline prices for American voters shortly before Election Day. Biden previously insisted in a Washington Post column that he was not traveling to Saudi Arabia to ask for oil but never clarified why he was visiting.
Following the visit, Saudi Arabia supported the OPEC+ decision to cut production by two million bpd the month before the midterm election. Rumors in American corporate media outlets claimed that Mohammed bin Salman, irked by Biden’s visit, made the decision to cut production after the “fist bump summit.” Some claimed the crown prince told Biden he would increase production and “duped” the president.
Watch — Jean-Pierre Dodges on Whether Saudis Backed Away from Oil Deal: ‘The Trip Was Not About Oil’
Shortly after October’s OPEC+ announcement, the White House accused Saudi Arabia of supporting production cuts to aid Russia’s invasion of Ukraine, a statement that earned what appeared to be an embarrassing rebuke from Ukrainian President Volodymyr Zelensky.
“Spoke to Crown Prince of Saudi Arabia Mohammed bin Salman. Thanked for supporting Ukraine’s territorial integrity, resolution at the UN General Assembly,” Zelensky wrote on Twitter shortly after the White House’s condemnation. Zelensky visited Saudi Arabia to thank Riyadh for its support last month.
Another point of contention that may have led to the Saudi production cuts was the Biden White House’s refusal to replenish supplies of America’s Strategic Petroleum Reserves (SPR), which Biden tapped to attempt to lower gasoline and diesel prices last year. Given the decline in oil prices in April that prompted the second OPEC+ cut, many market observers expected the U.S. government to buy up the cheap oil to restore the SPR’s supplies.
“This year it will be difficult for us to take advantage of this low price,” Energy Secretary Jennifer Granholm told the House of Representatives on March 23, indicating expected fuel demand from the Biden administration would not arrive.