In a strategic move to support the rebound of oil prices, Saudi Arabia is set to prolong its voluntary 1 million-barrel oil supply cut into September. As the top OPEC producer, the country introduced this additional cutback to counter faltering demand and maintain higher oil prices. This decision comes amid the ongoing challenges in the global energy landscape.
Recent predictions from six participants in a Bloomberg survey anticipate that Saudi Arabia will gradually taper off their extra cut by restoring 250,000-500,000 barrels a day of halted production in September. The oil market has shown a strong demand for these barrels, as refiners are eager to secure them, according to James Davis, the director of short-term global oil services at consultants FGE, in an interview with Bloomberg.
The efforts to curtail production have already demonstrated their effectiveness, with oil prices climbing approximately 12% in the past month, reaching around $83 per barrel. However, this may still be below Saudi Arabia’s ideal price level, as it requires $100-a-barrel crude to achieve a balanced financial scenario.
Towards Higher Prices Analyst Tamas Varga from brokers PVM Oil Associates Ltd. in London, states that Saudi Arabia would prefer to see a prolonged rise towards $90 a barrel and an improvement in Chinese economic data before considering a reintroduction of the 1 million barrels per day to the market.
The International Energy Agency (IEA) in Paris has forecasted an oil shortage of about 1.7 million barrels per day during the second half of the year, indicating a potential tightening of oil markets. Experts from Standard Chartered further predict a global oil supply deficit of 2.81 million barrels per day in August, 2.43 million barrels per day in September, and over 2 million barrels per day in November and December. They also project a decline in global inventories by 310 million barrels by the end of 2023, with another 94 million barrels in the first quarter of 2024, suggesting a potential boost in oil prices.
Saudi Arabia’s strategic extension of oil production cuts into September reflects its commitment to bolstering the oil market and ensuring stable prices. With global oil markets expected to gradually tighten and inventory levels projected to fall, all eyes are on the energy landscape as we approach the final quarter of the year. Investors, policymakers, and industry players alike will be keenly monitoring the developments in the oil sector to understand its implications on the broader economy.
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