Saudi Arabia Issues a Call for Nations to Cut Back on Oil Production
Saudi Arabia Issues a Call for Nations to Cut Back on Oil Production :
Saudi Arabia Issues a Call for Nations to Cut Back on Oil Production
In its quest to ensure some form of stability in the oil market, Saudi Arabia is contemplating cutting back on oil production and influencing other OPEC nations to cut back also. Notably, the international oil market has been experiencing volatility, mainly because of the Russia-Ukraine war.
Why does Saudi Arabia Intend to Cut Back on Oil Production?
Saudi Arabia may cut back on its oil production as the Organization of Petroleum Exporting Countries (OPEC) warns of increased volatility and low liquidity in the global markets. The country believes the current global energy market is unstable and may give a false sense of security. This news comes after Saudi Aramco breaks the world record as the first country to record the highest profit in a quarter.
Saudi Arabia and other OPEC members had previously agreed to cut down on oil production in 2020 when the demand for oil was at an all-time low. However, as countries sought to rebound from the effects of the pandemic and return to full functionality, the demand for oil has increased. Coincidently, this increased demand comes at a time when there is a strain on the world’s energy market due to the Russia-Ukraine war. To compound the problem, OPEC has been coming short of millions of its targeted barrel outputs.
There are also concerns about the rising prices of oil as it is believed that this may cause a reduced consumption of oil. Already, OPEC has cut down on its estimated 3.1 million barrels a day to 3.4 million instead. In addition, Saudi Arabia recently turned down requests from the United States to increase oil production to reduce gasoline prices. Prince Abdulaziz Salma, the Minister for Energy, stated that increasing the production quota may further increase the volatility in current global markets.
Undoubtedly, Saudi Arabia can produce more barrels as it has not yet reached its maximum production capacity. If the country decides to increase its oil production, it can drive down global oil prices. However, the government has refused to increase its oil production, considering the market volatility and false security. Interestingly, the government cut oil prices for Asian countries earlier this year, perhaps to combat the struggles in lifting lockdowns and returning to pre-covid-19 normal.
Other oil-producing countries like Nigeria have agreed with Saudi Arabia’s intended decision to cut down on oil production. A strong reason for this cut is that while the increased oil production seems brilliant in theory, it may as well be a pipe dream as there is no sufficient liquidity to offset the realities of the global oil markets. Timipre Sylva, Nigeria’s Minister for Petroleum, emphasized that it was necessary to stabilize the global oil market, and cutting down on production will aid that.
Conclusion
Indeed, the price reduction saga is like the Chicken and the Egg. On the one hand, the oil prices may be staggering for countries, especially in the quest to return their economies to normal. On the other hand, oil-producing countries must look out for themselves as there is not enough liquidity to offset volatility and bring about stability in the global market. Ultimately, every country has to watch out for itself and hope that some form of equilibrium is brought to the oil market.
Last Updated on 9 months by News Editor
