June 05, 2023 (MLN): Oil prices fell on Monday, reversing previous gains associated with Saudi Arabia’s decision to slash oil output by another 1 million barrels per day from July.

Brent crude is currently trading at $77.17 per barrel, down by 1.39 % on the day.

While West Texas Intermediate crude (WTI) is trading at $72.891 per barrel, down by 1.45% on the day.

On Friday, Brent crude extended gains of 2.53% after the Saudi energy ministry stated that the country’s output would drop to 9 million barrels per day (bpd) in July from around 10m bpd in May.

This is the biggest reduction in years.

OPEC+ produces around 40% of the total crude production, which indicates that its decisions can have a major impact on oil prices.

OPEC+ has in place cuts of 3.66m bpd, amounting to 3.6% of global demand, including 2m bpd agreed last year and voluntary cuts of 1.66m bpd agreed in April, as Reuters reported.

Suvro Sarkar, leader of the energy sector team at DBS Bank said, "Saudi remains keener than most other members in terms of ensuring oil prices above $80 per barrel, which is essential for balancing its own fiscal budget for the year,"

Saudi Arabia is the only member of OPEC+ with sufficient spare capacity and storage to be able to easily reduce and increase output.

Goldman Sachs analysts said the meeting was moderately bullish for oil markets and could boost Brent prices by $1-$6 a barrel depending on how long Saudi Arabia maintains output at 9 million bpd over the next six months.

On Sunday, OPEC+ said that the cuts would extend until the end of 2024.

In addition to extending the existing OPEC+ cuts the group also agreed on Sunday to reduce overall production targets from January 2024 by a further 1.4m bpd versus current targets to a combined of 40.46m bpd.

Whereas, the United Arab Emirates was allowed to raise output targets by around 0.2m bpd to 3.22m bpd.

Copyright Mettis Link News

Posted on: 2023-06-05T11:40:18+05:00