Saudi Arabia Voluntary Output Cut

In this interview given to Dani Burger from Bloomberg, Dr Carole Nakhle, CEO of Crystol Energy, comments on Saudi Arabia’s decision to cut its output by 1 Mb/d at the OPEC+’s meeting in June.

Dr Carole Nakhle discusses Saudi Arabia's decision to cut its output by 1 Mb/d at the OPEC+'s meeting in June with Dani Burger from Bloomberg

Key messages:

  1. The outcome of OPEC+’s meeting that has captured most attention is Saudi Arabia’s voluntary cut of 1 Mb/d, which can be extended depending on market conditions.
  2. Saudi Arabia’s proclaimed ‘lollipop to the market’ can actually be seen as an attempt by OPEC+ leadership to maintain the group’s cohesion, especially following the downward revisions to baseline production of several members.
  3. Those cuts come at a cost for Saudi Arabia as they bring its production to 9 Mb/d – a low by historical standards. However, if the consequence is higher oil prices, then the loss of the market share would be compensated for with higher revenues.
  4. While OPEC+ has a big market share, they are not the only movers and shakers in oil markets. Both non-OPEC supply and demand have responded to higher prices with the latter still affected by a low beat economic outlook. 
  5. Some argue that Saudi Arabia is after at least $US 80/bbl price floor. That number is what the International Monetary Fund highlighted as the price needed to balance the Saudi budget. We shouldn’t, however, inflate the importance of the so-called fiscal breakeven oil price as economies can still function with a budget deficit.
  6. Oil price forecasts have consistently proven their unreliability and inaccuracy. 
  7. Volatility in the markets is still expected to continue with prices unlikely to break the range they are currently trading at.

Related Comments

OPEC+ makes shock million barrel cut“, Dr Carole Nakhle, Apr 2023

Saudi Arabia transfers 4% of Aramco to PIF’s Sanabil“, Dr Carole Nakhle, Apr 2023

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