Oil prices reached the highest point since February 2020 this week, following Saudi Arabia’s surprise announcement at the monthly OPEC + Ministerial Meeting that it would voluntarily cut another 1 million barrels a day of its oil production. This extra cut – by the group’s only real oscillating producer – more than makes up for the production increases granted to Russia and Kazakhstan, and is a completely different result than what industry analysts and experts expected.
Saudi Arabia and Russia – the two most powerful members of the OPEC + alliance – are at odds over how to respond to changes in the oil market and reduce demand. Russia fears that US shale will take advantage of any reduction in production that OPEC + members do. And it is not entirely wrong. Russia is focused on market share. Saudi Arabia is focused on price. Although the word “price” is never used. Instead, the phrase “market balance” or “restore market balance” is preferred. With Saudi Arabia cutting one million barrels a day, two things are clear: 1) The Saudis are seeing a slowdown in the market, probably due to the refinery maintenance season in Asia and a new wave of blockages due to the new, more virulent strain of the Covid-19, and none of the other producers can afford (nor are they willing to) further reduce production. 2) While Saudi Arabia remains the most powerful member of OPEC, its power is diluted …