Saudi Arabia announced a significant reduction in its production of oil in a surprise announcement earlier this week. The major oil producer announced a cut of one million barrels per oil produced per day beginning next month.
The upcoming decline in production followed several other efforts to reduce the global energy supply.
OPEC agreed to reduce its collective oil production by 1.6 million barrels per day in April, which was supported by Saudi Arabia. Furthermore, the oil cartel agreed to another two million barrel per day reduction late last year.
The immediate impact of the Saudi announcement led oil prices to jump one dollar per barrel.
Global oil prices rose by more than $1 a barrel. The jump came after a weekend pledge by Saudi Arabia to cut output by 1 million barrels per day. The move was announced at a gathering of the OPEC group of oil producing nations in Vienna https://t.co/lQG28Mqsu0 pic.twitter.com/7ifzKycC4B
— Reuters (@Reuters) June 5, 2023
Riyadh’s decision comes as fallout from the war between Russia and Ukraine has continued to affect the energy markets. With Russia representing one of the largest oil and natural gas producers on the planet, the United States and European nations have grown increasingly dependent on outside sources of fuel.
In addition, consumers who received a slight reprieve from recent gas prices will now likely be hit with another inflationary pressure. New inflation numbers are expected later this month, but the last available statistics show that the rate remains stubbornly high.
With the U.S. summer driving season beginning, the impact of the Saudi petroleum cut will likely further compound rising gas prices.
Saudi Arabia’s decision may also assist Moscow. Following the start of the war last February, Western nations agreed to a $60 per barrel price cap on Russian oil, intending to squeeze Russia’s economy and the federal budget.
However, the world’s largest nation has been able to supply oil and natural gas to a number of nations that have either not participated in or have been lukewarm in their support of Western sanctions.
The pressure caused by the production cut also comes at a time when the United States government partially limited traditional fuel source exploration. The Biden administration approved part of the Willow Project in Alaska but also removed millions of acres from potential oil and natural gas exploration.
