How Saudi Arabia’s Oil Production Reduction Could Impact U.S. Gas Prices

The news article you provided states that Saudi Arabia is planning to reduce its oil production in an effort to increase the price of crude oil. This decision comes after previous production cuts by OPEC+ countries failed to have the desired effect on oil prices. Here are the key points:

  1. Saudi Arabia’s Unilateral Cut: Saudi Arabia will reduce its oil production by 1 million barrels per day starting in July. This move is aimed at propping up the price of crude oil.
  2. OPEC+ Extension: While Saudi Arabia is cutting its production, other OPEC+ producers have agreed to extend previous production cuts through the following year. This indicates a collective effort by the alliance to stabilize the oil market.
  3. Saudi Energy Minister’s Statement: Saudi Energy Minister Abdulaziz bin Salman referred to the reduction as a “lollipop” and expressed the intention to bring stability to the market. He also mentioned the possibility of extending the production cut beyond the initial period.
Oil Production

It’s important to note that changes in oil production and OPEC+ decisions can have an impact on global oil prices, which, in turn, can affect gasoline prices in various countries, including the United States. Higher oil prices could potentially lead to an increase in U.S. gas prices. However, the exact impact and extent of any potential price increase would depend on a variety of factors, including supply and demand dynamics, geopolitical developments, and market conditions.

Please keep in mind that the information provided in the news article is based on the knowledge available up until the publication date and may be subject to change as new developments occur.

Jorge Leon, senior vice president of oil markets research at Rystad Energy, said that the new reduction would likely increase oil prices in the near term, but that the long-term effect would rely on Saudi Arabia’s decision to prolong it.

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U.S. motorists may fill up their tanks for less money because to the drop in oil prices, which has also provided some respite to consumers globally from inflation.

Petrol won’t become any cheaper, Leon said. It could even get a little bit more pricey.

The uncertainty surrounding the outlook for petroleum consumption in the upcoming months is highlighted by the Saudis’ belief that another decrease was required. While there are worries about an economic weakening in the United States and Europe, China’s recovery from COVID-19 limitations has lagged below expectations.

One of the OPEC oil cartel’s major producers, Saudi Arabia, was among the countries to consent to a sudden decrease of 1.6 million barrels per day in April. The kingdom contributed 500,000. Following the announcement in October that it would cut 2 million barrels per day, OPEC+ threatened to raise petrol prices a month before the midterm elections, which infuriated U.S. President Joe Biden.

In all, OPEC+ has reduced output by 4.6 million barrels per day on paper. However, several nations are unable to meet their limits, thus the real drop in supply is roughly 3.5 million barrels per day, or more than 3% of it.

The past decreases did not significantly raise oil prices over time. Despite reaching a high of $87 per barrel, the international benchmark Brent crude price has since given up its post-cut gains and has been hovering around $75 per barrel recently. Recently, U.S. crude fell under $70.

As a result, according to car club AAA, petrol prices in the United States currently average $3.55, $1.02 less than they were a year ago. The 20 European nations that use the euro saw their inflation rate fall to its lowest point before to Russia’s invasion of Ukraine thanks in part to declining energy costs.

To finance ambitious development initiatives intended to diversify the Saudi economy, the nation needs to maintain consistently high oil revenues.

According to the International Monetary Fund, the monarchy needs oil prices to be $80.90 per barrel in order to achieve its projected expenditure obligations, which include a $500 billion initiative to build a futuristic desert metropolis dubbed Neom.

In a sign that American authorities may be less concerned about OPEC cuts than in the past several months, the U.S. recently restocked its Strategic Petroleum Reserve after Biden declared the largest release from the national reserve in American history the previous year.

While oil-producing nations like Saudi Arabia require cash to support their national budgets, they also need to consider how rising oil prices may affect oil-consuming nations.

Too-high oil prices can fuel inflation, reduce consumer purchasing power, and force central banks, like the U.S. Federal Reserve, to raise interest rates further, which might impede economic development.

Saudi Arabia’s reduction in output and any rise in oil prices might boost the earnings that are assisting Russia in financing its conflict with Ukraine. As a result of Western sanctions intended to cut back on Moscow’s vital energy revenue, the country has discovered new oil consumers in India, China, and Turkey.

However, if crude prices rise beyond the $60 per barrel price ceiling agreed by the Group of Seven major democracies, it may complicate commerce by the world’s third-largest oil producer.

By using “dark fleet” tankers, which alter location data or transport oil from ship to ship to conceal its origin, Russia has discovered ways to get around the price restriction. However, such expenditures are incurred.

According to the OPEC+ agreement, Russian Deputy Prime Minister Alexander Novak stated Moscow will maintain its voluntary cut of 500,000 barrels per day into the next year.

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