Oil prices reached their highest level since February 2020 this week following Saudi Arabia’s surprise announcement at the monthly OPEC + Ministerial Meeting that it would voluntarily cut an additional 1 million barrels per day from its oil production. This extra cut – by the only true swing producer in the group – compensates more than the production increases granted to Russia and Kazakhstan, and this is a completely different result than analysts and industry experts expected.
Saudi Arabia and Russia – the two most powerful members of the OPEC + alliance – were at odds over how to respond to the changing oil market and declining demand. Russia is worried that the US shale will benefit from the decline in production produced by OPEC + members. And that’s not entirely wrong. Russia is focused on market share. Saudi Arabia, on the other hand, focuses on price. Although the word “price” is never used. Instead, the phrase “market balance” or “restore balance in the market” is preferred. As Saudi Arabia cuts a million barrels a day, two things are clear: 1) The Saudis are feeling a relaxation in the market, probably due to the season for refinery maintenance in Asia and a new wave of closures due to the new, more virulent strain of Covid 19, and none of the other producers can afford (and are not willing to) further reduce production. 2) While Saudi Arabia remains the most powerful member of OPEC, its power is diluted …