Oil-dependent Saudi Arabia is trying to raise the price of oil.
Saudi Arabia’s decision to cut crude oil production will not have dramatic effects on the market. The decision will hardly affect the price of fuel in Finland.
– I do not believe. The price of oil varies quite a lot anyway. This is a normal market fluctuation, says the research manager Iikka Korhonen From the Bank of Finland’s Emerging Economies Research Institute.
Saudi Arabia announced yesterday that it will reduce its crude oil production by one million barrels per day from the beginning of July. As a result of the decision, the price of oil has risen by about two percent since Friday.
– However, oil is still almost ten percent cheaper than just over a month ago. The price slippage was contained to some extent, but this did not result in a terribly big change.
– Apart from Saudi Arabia, no other Opec country started to cut their production, Korhonen points out.
Saudi Arabia announced the production cut during the joint Opec+ meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies.
Opec+ countries, which also includes Russia, produce about 40 percent of the world’s crude oil. Saudi Arabia’s share of the world’s oil production is about 12 percent. It is the world’s second largest oil producer after the United States. The third largest oil producing country is Russia.
Saudi Arabia may cut more in July
With price increases remaining very scarce, Saudi Arabia has announced that it is considering cutting further crude oil production in July. The national economy of an oil-dependent country would need a higher oil price.
It will be problematic for Saudi Arabia if no other oil country cuts its production.
– Saudi Arabia will lose its market shares if other producers do not cut back. And if the price doesn’t go up, Saudi Arabia will lose export revenue.
According to Korhonen, the world market price of oil is currently close to the longer-term average.
– Although there is economic growth, it is not terribly strong. The hopes directed at China for a quick and strong recovery have not come true. Now we have to think about how much oil is needed.
According to Korhonen, Saudi Arabia’s decision to cut crude oil production does not indicate a rapprochement between Saudi Arabia and Russia.
– This is Saudi Arabia’s own bet, based on their own needs. Saudi Arabia would need higher oil prices. No other country, including Russia, went along with this.
Opec did not allow the representatives of the three big media, namely Reuters, Bloomberg and The Wall Street Journal, to its meeting, which was held over the weekend in Vienna, Austria.