Saudi Arabia, in an Unprecedented Move, Cuts Down on its Oil Production Significantly
Following the OPEC+ announcement for countries to reduce oil production to two million barrels daily, Saudi Arabia has moved to cut down its oil production. This move comes a little after the President of America, Joe Biden, visited the country to request for oil production increase.
What are the Specifics of the Oil Cut
In a bid to increase oil prices after a recent significant downward spiral, the OPEC+ alliance took a decisive step to cut barrel production per day to two million barrels. Contrary to popular opinion, the move by OPEC+ is purely to support prices and prevent them from falling further. Given that the total global oil consumption can range up to 100 million barrels per day, this precedented move will indeed have several ripple effects on the world’s energy supply.
The cut comes after President Joe Biden travelled to Saudi Arabia some months back to convince the government to increase production. Saudi Arabia believes that reducing oil production may aid the balance of supply and demand by reducing the oil in the market. However, the country has been concerned about continuous oil release from the Western Nations’ reserves, particularly the United States.
Nonetheless, Saudi Arabia contemplated convincing the OPEC+ alliance to postpone the implementation of the oil cut by a month due to pressure from the United States. However, postponing the decision of OPEC+ may have negative global economic consequences. The Saudi Arabia Foreign Ministry has declared that the government is continually consulting with the United States government.
In all, the country is particular about preserving the strength of its relations with countries and rejecting any actions to distort its noble objectives to protect the world from market volatility. The government has also reiterated that it is against the Russia-Ukraine war. The cut is not a move to indemnify Russia against the sanctions brought on by its war actions.
What are the Likely Consequences of the Oil Cut
Undoubtedly, the move to cut oil prices is well-thought-out and cannot be said to be made in a vacuum. Reducing Saudi Arabia’s oil production from millions of barrels to two million barrels is quite a large one. It will provide much-needed relief from burning fossil fuels and releasing Greenhouse Gases. On a national level, the cutback on oil production will improve declining oil prices and boost individual oil-producing economies. Also, it must be noted that in the past few months, the oil market has been quite volatile, with an imbalance in demand and supply and less liquidity than the global economy can afford. The reduction in oil prices will affect market stability and ensure some semblance of cohesiveness in the worldwide oil market.
Conclusion
Reducing oil prices in light of the accompanying effects may be the right move needed at this time. It sure beats the simultaneous option of having volatile markets, low liquidity, and ongoing climate issues caused by fossil fuel burning and expenditure.
Last Updated on 9 months by News Editor
