Saudi Arabia to end its oil production limit

  •   10/06/2020 - 13h45
  •   HARMANT Adeline

It was on Monday that the Saudi Minister of Energy made an announcement that caused the black gold market to react strongly. The minister announced that Saudi Arabia intends to end its limitation of crude oil production. As of July, the country will therefore increase its production until it reaches the quota set by OPEC and will put an end to further voluntary reductions as the global economic recovery takes shape and demand picks up again. Let us look back on this decision and its consequences together.

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Saudi Arabia to end its oil production limit
Image copyright: ben klocek - Flickr

World Oil Production Update:

Over the weekend, OPEC also decided, in agreement with other oil-producing countries including Russia, to extend their coordinated production cut by one month. This is in fact an extension of the agreement which had allowed crude oil to double its price over the last two months with a withdrawal from the market of nearly 10% of world supply. For their part, Saudi Arabia, the United Arab Emirates and Kuwait have also agreed to reduce their production to 1.18 million barrels per day for the month of June.

But it was Saudi Arabia which was the first to renege on this commitment on Monday by explaining that these reductions would not be extended in July and that the country would thus increase its offer to reach the quota fixed by OPEC. This decision was taken in light of the partial lifting of the containment measures which led to a return of demand for black gold worldwide.

Prince Abdulaziz bin Salman, Saudi Arabia's Minister of Energy also said: "The further decline in production has achieved its objective and we are moving forward. Much of July's production increase will go to domestic consumption," at the virtual press conference organized by OPEC+. The latter also indicates that the rise in the selling price of Saudi crude oil can be seen as an indication of a return to an upward trend in world oil demand.

 

The effects of this announcement on the price of a barrel of oil :

Of course, this announcement at the beginning of the week was not without consequence for the oil market. Indeed and while Brent crude oil had reached a three-month high of $43.41 recently, it started a downward trend just after these statements and fell back to $41.30.

Let us note that the situation of Russia and Saudi Arabia is quite complex as both countries have to support their economies at the same time by limiting price increases in order to avoid a resumption of competing shale oil production in the United States.