World oil prices soar as Saudi Arabia cuts production

US WTI crude oil rose 5% this morning, following news that Saudi Arabia voluntarily cut production by an additional 1 million barrels a day.

At the opening of the trading session on June 5, the price of a barrel of WTI increased by 5% to 75.06 USD. The price of Brent also increased by more than 3%, to 78.73 USD per barrel. Currently, the increase of both types of oil is more than 2%.

After a tense meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) on June 4, Saudi Arabia – the leading OPEC country announced a voluntary production cut of an additional 1 million barrels per day in July to stabilize the oil market. Other countries also committed to maintain the current cuts (announced in April) until the end of 2024. Russia did not reduce production further, while the UAE was granted an increase in quota for next year.

OPEC+ reached the deal after a protracted dispute with African members over how to measure their cuts, which delayed the start of the meeting by several hours.

Saudi Arabian Energy Minister Abdulaziz bin Salman on June 4 in Vienna (Austria). Photo: Reuters

Saudi Arabia's Energy Minister Abdulaziz bin Salman said production cuts could be extended beyond July, but the country would keep the market "in suspense" to see what happens. Abdulaziz said he would "do whatever is necessary to stabilize the market."

Ahead of the OPEC+ meeting on June 4, Abdulaziz warned short sellers in the oil market (bets on falling oil prices) that they should "watch out."

“The market is likely to tighten further in the second half of the year. Saudi Arabia’s move took the market by surprise,” analysts at ANZ Group said.

Last month, WTI crude prices fell 11% as concerns about demand, especially from China, weighed on the consumption outlook. Ahead of the meeting, Reuters reported, citing sources familiar with the matter, that OPEC+ could cut another 1 million barrels a day. However, most analysts, including Goldman Sachs Group, expect output to remain unchanged and that OPEC+ countries will make no further moves.

In October 2022, OPEC+ announced a production cut of 2 million barrels per day. In April 2023, they suddenly announced a voluntary cut of another 1.6 million barrels, starting in May.

Ha Thu (according to Bloomberg)

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