Oil costs fell by nine% last week, however, Saudi Arabia, the world’s largest crude oil exporter, will reduce production in the short term.
The Financial Times reported Thursday, bringing up five confidential sources, that if the fall in Brent futures below $40 this week causes nervousness in Saudi Arabia, the kingdom will keep its production levels intact.
Brent’s costs have been below $40 since early June.
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Earlier this week, Saudi Arabia cut its crude oil sales to Asia to counter the slowdown of some of the world’s largest consumers, such as China.
Saudi Arabia also cut production through an additional 1 million barrels consistent with the day in June at prices. According to the most recent OPEC report of the month, Saudi Arabia produced about 8. 4 million barrels consistent with the day in July.
But resources told the FT that Riyadh dares not reduce production, especially given its position as an effective leader in the so-called OPEC export group, which includes the 13 members of the Organization of Petroleum Exporting Countries, as well as other primary manufacturers such as Russia, Oman and Kazakhstan.
Saudi Arabia would be involved if it cut production, sold the market according to the percentage to rival exporters, and undermined OPEC’s agreement to reduce production through 7. 7 million barrels according to the day through December, a fall from last agreed record of 9. 7 million barrels consistent with day.
The value of Brent was affected in April when coronavirus blockades torpedoed fuel demand. While the value of Brent fell from a final value of up to $59. 31 in early March to just over $19, the value of US crude oil in the Middle East and North America has fallen to $19. But it’s not the first time It fell to a point as low as — $40 consistent with the barrel. .
OPEC and its partners agreed to cut production by 9. 7 million barrels in May and June, however, several members took time to sign the agreement, such as Iraq and Nigeria.
The organization reached an agreement in July to increase production through August, followed by a commitment through Iraq, the second largest member of the bloc, to meet the agreed targets, with a relief of 400,000 barrels consistent with the day of August and September.
But Helima Croft, who leads the commodity strategy at RBC Capital Markets, said in an interview with Business Insider in July that “cheating” across small, lagging countries would still be relevant.
More concerned about Riyadh, the United Arab Emirates, which has been an unconditional ally, said last week that it had produced above its agreed quota. After joining OPEC production agreements for nearly 4 years, this poses a challenge for Saudi Arabia, which has publicly insisted that Iraq and Nigeria exceed quotas.
Saudi Arabia is willing to undermine the OPEC agreement because it is in everyone’s interest that the agreement remains in force.
Anas Alhajji, who advises oil-producing governments, told the FT that any additional cuts by Saudi Arabia would “complicate the dynamics of OPEC. “”How can we convince countries that are already suffering from making additional cuts to make them deeper?in everyone’s interest to OPEC in the course,” he added.
“Despite the recent fall in oil prices, OPEC leaders will continue to focus on greater compliance rather than pushing for deeper cuts at this stage,” RBC’s Croft said.