Saudi Arabia hurries to raise oil prices and revive the market that helped crash

The sun sets behind an idle pump jack near Karnes City, Texas, Wednesday, April 8, 2020. Demand for oil continues to fall due to the new coronavirus outbreak. (AP Photo/Eric Gay)
This would leave Saudi Arabia’s daily production at only 7.5 million barrels, down 39% since April when the kingdom was intentionally flooding the oil market in the midst of an epic price war with Russia.

The latest production cuts by Saudi Arabia, the world’s largest oil exporter, underscore the intense pressure exerted by the oil slump on the Middle East nation’s budget.

“They need to raise prices and stabilize the oil market because that’s their ATM,” said Helima Croft, head of the global commodity strategy at RBC Capital Markets.

Saudi Arabia needs oil prices for more than double to balance his vast budget, which includes heavy social and military expenses.
Hours before the detail of the production cuts, Saudi Arabia announced new steps to fill gaps in its budget, including tripling its value added tax.

A Saudi energy ministry official told state media that the kingdom hopes that further cuts will “encourage” OPEC + and “other producer countries” to provide “additional voluntary cuts” in support of the oil markets.

In other words, more needs to be done to balance oil prices, which remain at depressed levels even after the strong rebound of an unprecedented drop in negative territory last month.

“Just a few weeks ago, Saudi Arabia was flooding the oil market. They are now completely reversing their position,” said Ryan Fitzmaurice, Rabobank’s energy strategist.

Oil markets mingled with unstable exchanges in response to Saudi Arabia’s latest rescue efforts.

American crude rose nearly 2% to $ 25.20 a barrel on Monday morning. Brent, the global benchmark, had barely changed at $ 31 a barrel. This is well below the $ 80 a barrel that Saudi Arabia needs to balance its budget.

The demand for gasoline in the United States appears to have bottomed out as some states reopen their economies. But the world still needs much less oil than before the pandemic. And the outlook for jet fuel remains weak due to the health crisis.

That’s why Saudi Arabia is making even more cuts in June and potentially even before then. State media reported that the Saudi Ministry of Energy has directed Saudi Aramco, the national oil company, to “try to reduce” even May production “in consensus with its customers”.

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“It’s just another sign that the price war is definitely over. Saudi Arabia has come back in any way,” said RBC analyst Croft.


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