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Saudi Arabia and Russia Extend Crude Oil Supply Cuts: Prices Expected to Rise

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Saudi Arabia and Russia Extend Crude Oil Supply Cuts

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Saudi Arabia’s energy minister said the decision to extend crude oil supply cuts with Russia is not aimed at raising prices. Brent futures currently hover around $95 a barrel, and analysts predict further increases into triple digits.

Saudi Energy Minister Prince Abdulaziz bin Salman emphasized that the decision to reduce or increase production is based on data and clarity, not on artificially inflating prices.

Some members of OPEC+ are implementing voluntary production declines beyond the agreed-upon policies until the end of 2024. Additionally, Saudi Arabia and Russia announced voluntary production and export declines until the end of the year.

Saudi Arabia heavily relies on oil revenues to support its economy and diversification projects.

Oil prices have been rising due to supply cut announcements, leading to speculation of a potential volume deficit in the latter part of 2023. Some analysts believe oil prices could reach $100 per barrel.

Chevron CEO Mike Wirth acknowledged the possibility of reaching this threshold, stating that supply is tightening and inventories are decreasing. However, he expressed confidence in the economy’s ability to handle higher prices.

Higher energy prices have contributed to inflation in recent months.

Peak feud

Saudi Energy Minister Abdulaziz criticized the International Energy Agency (IEA) for its forecasts and shift towards political advocacy. The IEA recently projected that oil demand would peak before 2030 due to the growth of electric vehicles.

Amin Nasser, CEO of Aramco, Saudi Arabia’s state-controlled oil giant, also questioned the concept of peak oil demand and emphasized the importance of carbon capture in the transition.

The comments come ahead of the United Nations climate change conference, which will take place in the United Arab Emirates. Saudi Arabia and the IEA have differing views on climate change and the role of fossil fuels in decarbonization.

U.S. stance

The Biden administration has remained relatively silent on the OPEC+ reductions, as it balances domestic interests and foreign policy objectives. Saudi Arabia’s close ties with Russia and resumption of ties with Iran have also impacted its relationship with the U.S.

The U.S. continues to seek normalization between Israel and Saudi Arabia while considering its energy needs.

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