Alexey Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance, commented to Sputnik about the Saudi Arabia decision on an additional voluntary reduction in oil output by 1 million barrels per day, starting from July 01, 2023.
At the end of the OPEC+ meeting, a decision was made to limit production by another 1.4 million barrels per day, starting from 2024. The very same agreement on coordinating the actions of the countries included in the organization has been extended until 2025.
If the OPEC+ decision was quite expected, then the initiative of Saudi Arabia - to reduce oil production in July by 1 million barrels per day - was unexpected. Riyadh announced its move to see how the global market reacts. The main motivation for Saudi Arabia's actions is to stabilize the situation on the market and prevent the risk of lower prices in the future.
This decision can be extended to August and subsequent months, depending on the situation, the expert suggests. According to Alexey Gromov, Riyadh will in any case adjust its policy of voluntary export restrictions.
"The fact is that fears of a global recession are very strong today, given the poor production and economic performance of many developed economies, including the United States and the eurozone. By the way, the current slow development of the Chinese economy is not encouraging either. All this puts negative pressure on quotes. In fact, by its actions, Riyadh is trying to preempt this negative impact in order to maintain the level of oil prices in the corridor of $80-85 per barrel in the foreseeable future. This price level is comfortable for the formation of the budget of Saudi Arabia," Alexey Gromov specified.
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