Saudi Arabia has announced an extension of its oil production cut as previous reductions by the OPEC+ alliance failed to raise prices. The voluntary cut of 1 million barrels per day will continue through the first three months of next year. This decision comes in addition to other cuts made by OPEC+ and individual countries. The ongoing concerns about oversupply in a weakening global economy have prevented these reductions from making a lasting impact on oil prices.
The announcement from Saudi Arabia followed an online meeting of the OPEC oil cartel and allied nations, including Russia. The meeting coincided with the start of the UN climate conference in the United Arab Emirates, an OPEC member. Brazil is set to join the OPEC+ bloc in January, expanding the alliance’s efforts to control global oil supply.
Russia, which seeks more oil revenue amid Western sanctions, has implemented a voluntary cut of 300,000 barrels per day until the end of the year. The Saudis, on the other hand, need oil prices to reach nearly $86 per barrel to meet their spending goals. They are aiming to reduce their dependence on oil, diversify their economy, and create jobs for their young population.
Despite the production cuts, the international benchmark Brent crude has remained in the low- to mid-$80 range, reflecting concerns about oversupply and a weakening global economy. Lower oil prices have benefited U.S. drivers, with gas prices falling or remaining steady since September. However, gas prices are still higher than when President Joe Biden took office, contributing to high inflation, which is a political challenge for his administration.
While OPEC’s influence over oil supplies may diminish as Saudi Arabia cuts production, other countries are expected to increase their output. The conflict between Israel and Hamas has not had a significant impact on oil supply flows, contrary to initial fears.