Saudi Arabia to cut oil production in line with April OPEC+ deal

Saudi Arabia is planning to cut oil output by one million barrels per day (bpd) from today, in addition to

A Saudi oil production facility

Photo: AFP via Getty Images

Saudi Arabia is planning to cut oil output by one million barrels per day (bpd) from today, in addition to previous cuts agreed to by OPEC and other oil-producing countries of 9.7 million bpd.

So far Saudi Arabia has been complying with promised production cuts and curtailing supply further to support the stability of international oil markets. Kuwait and the UAE, following Saudi Arabia’s footsteps, have announced additional cuts of 80,000 bpd and 100,000 bpd respectively. Even though this reduced output will likely not re-balance the oil market completely, reduced production will ensure that oil storage facilities are not overburdened.

The effectiveness of supply cuts from Saudi Arabia and other oil-producing countries continues to be outpaced by changes in demand. Although prices recovered slightly after this year’s crash due to the COVID-19 pandemic, they were still well below recent highs. Furthermore, prices have dropped again in the past week due to fears of new negative demand shocks as countries thought to have passed the peak of the pandemic report new cases.

Going forward, expect demand for oil to decrease as consumers increasingly fear a second wave of the virus. Saudi Arabia and other oil-producing countries may be forced to continue or expand production cuts, but these will likely be ineffective at propping up oil prices if demand continues to fall.

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