Saudi Arabia and Russia have extended their joint oil production cuts by 1.3 million barrels per day until the year’s end. This move caused oil prices to spike, with benchmark Brent crude exceeding $90 per barrel, a level unseen since November.
While this decision may lead to higher inflation and fuel costs, it also strains Saudi Arabia’s relations with the U.S., as President Biden had previously warned of “consequences” for Saudi-Russian cooperation due to Russia’s Ukraine conflict involvement.
Saudi Arabia plans to monitor market conditions closely and take further action if needed, aligning with OPEC+ efforts to stabilize oil markets. Russia will continue its daily 300,000-barrel cut.
Brent crude had traded between $75 and $85 per barrel since November before these announcements.
No immediate U.S. reaction, but past criticism of OPEC, Saudi Arabia, and Russia by U.S. lawmakers persists. Analysts predict these cuts may create global oil imbalances and push prices above $90 per barrel if there isn’t a significant economic downturn.
U.S. gasoline prices average $3.81 per gallon, slightly below the 2012 Labor Day high of $3.83, but the impact remains uncertain. Higher gasoline prices can raise transportation costs and contribute to inflation.
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Saudi Arabia’s production cut, initiated in July, aligns with other OPEC+ countries extending cuts into the following year, yet previous cuts failed to significantly raise oil prices due to weak demand and tighter monetary policies. International travel’s revival is expected to boost oil demand.
Saudi Arabia aims to boost oil prices to fund its Vision 2030 initiative, diversifying its economy and creating jobs, including the $500 billion Neom city project.
Balancing these goals, Saudi Arabia must manage its U.S. relationship, complicated by past tensions over Jamal Khashoggi’s killing. Recent negotiations include nuclear cooperation, raising nonproliferation concerns.
Higher oil prices from these cuts also aid Russia in funding the Ukraine conflict, as Western sanctions reduce Moscow’s revenues, leading to discounted oil sales.
These dynamics add complexity to the global geopolitical landscape surrounding oil production.
