Russia and Saudi Arabia have agreed to cut oil production further to boost crude prices through the summer.
Moscow officials announced the cut in oil production by roughly 500,000 barrels a day starting in August as Riyadh will extend its production cut of 1.4 million barrels. During a meeting held last month, the two countries doubled their resolve to boost crude prices.
Cutting Oil Production
The two nations decided to cut oil production, boosting crude prices, during a time when energy markets are bracing for tighter supply. Russian Deputy Prime Minister Alexander Novak was the one that announced Moscow's decision on Monday.
On the other hand, the Saudi Arabian nation's press agency said that officials would extend the previously enacted production cut from July. On Monday, oil prices rose as markets assessed the supply outlook. The international benchmark, Brent Crude, rose by 1% to trade at $76.03 per barrel, as per Yahoo Finance.
For several months now, Saudi Arabia has been working to boost crude prices even higher as the nation's energy chief cited market "distortions" that sent prices to artificially low levels. The oil cartel that the country leads, OPEC+, also cut crude production aggressively through last year.
Furthermore, the nation publicly expressed its displeasure with Russia, which has kept its energy revenue afloat under Western sanctions by selling off vast amounts of cheap crude to mostly Asian customers. Saudi officials in May accused Moscow of not following through with promised OPEC+ production cuts.
The situation caused oil prices to fall below $81 per barrel, a key break-even level needed to fund large swaths of Saudi Arabia's economy. However, the two countries have recently steeled their resolve to boost oil prices hand-in-hand.
Other OPEC+ members have pledged to cut oil production through the end of 2024 amid a disappointing outlook for global demand. According to CNN, this also comes amid a strong post-pandemic rebound in the Chinese economy looking increasingly unlikely.
Effects on the Global Economy
On Monday, officials released Chinese factory survey data that showed only modest growth in activity in the world's second-largest economy last month. There were some firms that cut staff as sales came in much weaker than they had anticipated.
In a statement, analysts at S&P Global said that optimism around the 12-month outlook for production dropped to an eight-month low in June. This was because some firms were concerned over relatively sluggish market conditions.
Algeria also said on Monday that it would cut oil output by an additional 20,000 barrels from Aug. 1 to Aug. 31 to support Saudi Arabia and Russia in balancing and stabilizing oil markets. The country's energy ministry said the additional production cut would be on top of the 48,000 reductions decided in April.
Libya's Oil Minister, Mohamed Oun, said that his country also welcomed the decision of Saudi Arabia, which he argued would have a "positive impact on the market balance between global producers, consumers, and the global economy," said Reuters.
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