Saudi Arabia to cut oil exports, price hikes possible worldwide

(Patria) - Saudi Arabia will reduce the amount of oil it sends to the global economy, taking a unilateral step to stop the decline in oil prices after two previous supply cuts by OPEC+ failed to boost prices, AP reported.

The Saudi cut of one million barrels per day, which will begin in July, comes as other OPEC+ producers agreed at a meeting in Vienna to extend earlier production cuts until next year.

The new cut would likely boost oil prices in the short term, but the effect afterward will depend on whether Saudi Arabia decides to extend it, said Jorge Leon, senior vice president of oil market research at Rystad Energy.

Saudi Arabia, the dominant producer in the OPEC oil cartel, was one of several members that agreed to an unexpected cut of 1.6 million barrels per day in April. The kingdom's share was 500,000. This followed OPEC+ announcing in October that it would cut by two million barrels per day, which angered US President Joe Biden.

The Saudis need high oil revenues to finance development projects aimed at diversifying the country's economy. The International Monetary Fund estimates that Riyadh needs $80.90 per barrel to meet its projected spending obligations, which include the planned $500 billion futuristic city project called Neom.

International benchmark Brent crude recently rose to as high as $87 a barrel, but has fallen below $75 a barrel in recent days. US oil has fallen below $70.

The Saudi production cut and any increase in oil prices could increase profits that help Russia pay for its war against Ukraine. Russia has found new oil buyers in India, China, and Turkey amid Western sanctions designed to curb Moscow's key energy revenue.

Ultimately, less oil on the market could lead to higher oil prices in many parts of the world.