Saudis seek bigger oil cut as coronavirus slashes demand

Saudi Arabia Seeks Bigger Oil Cut as Coronavirus Slashes Demand

In a bid to stabilize the global oil market, Saudi Arabia is pushing for a deeper production cut to offset the devastating impact of the coronavirus pandemic on oil demand.

The kingdom, the world's largest oil exporter, is seeking a reduction of 1.3 million barrels per day (mb/d) in oil production, according to sources familiar with the matter. This would be a significant increase from the 600,000 mb/d cut agreed upon by the Organization of the Petroleum Exporting Countries (OPEC) and its allies in April.

The Saudi-led OPEC+ alliance has been struggling to balance the market since the pandemic hit, as lockdowns and travel restrictions have led to a sharp decline in oil demand. The group's previous production cuts have failed to stem the tide, with global oil inventories still building up.

Saudi Arabia's proposal for a deeper cut is seen as a last-ditch effort to stabilize the market and prevent a further collapse in oil prices. The kingdom has already taken significant steps to reduce its own production, but it believes that a larger cut is needed to rebalance the market.

The proposal is expected to be discussed at an emergency meeting of OPEC+ ministers next week. Other major oil producers, including Russia and the United Arab Emirates, are likely to resist a deeper cut, given their own economic concerns and the need to maintain production levels.

The outcome of the meeting will have significant implications for the global oil market, with prices already plummeting to historic lows. A deeper cut could help to stabilize prices and support the global economy, but it would also come at a significant cost to oil-producing countries.

Market Reaction

Oil prices surged on the news, with Brent crude rising 4.5% to $34.50 per barrel and West Texas Intermediate (WTI) climbing 4.2% to $31.50 per barrel.

Analysts are divided on the likelihood of a deeper cut, with some predicting that OPEC+ will agree to a larger reduction to stabilize the market, while others believe that the group will resist a deeper cut due to economic concerns.

Impact on the Global Economy

A deeper oil cut could have significant implications for the global economy, which is already reeling from the impact of the pandemic.

A stabilization of oil prices could help to support economic growth, particularly in countries that are heavily reliant on oil exports. However, a deeper cut could also lead to higher prices for consumers, which could have a negative impact on economic activity.

The outcome of the OPEC+ meeting will be closely watched by investors and policymakers around the world, as it could have significant implications for the global economy and oil market.