Oil prices hit their highest point since February 2020 this week following Saudi Arabia’s surprise announcement at OPEC’s monthly ministerial meeting that it would voluntarily cut an additional 1 million barrels on the day of the oil production. This further reduction – by the group’s only true swing producer – more than offsets the production increases granted to Russia and Kazakhstan, and is a completely different result from what industry analysts and experts had expected.
Saudi Arabia and Russia, the two most powerful members of the OPEC + alliance, have been at loggerheads over how to respond to changing oil markets and reducing demand. Russia is concerned that the American shale is taking advantage of any decline in OPEC members’ output. And it’s not entirely bad. Russia focuses on market share. Saudi Arabia, on the other hand, focuses on price. Although the word “price” is never used. Instead, the phrase “market equilibrium” or “restore market equilibrium” is preferred. With Saudi Arabia cutting a million barrels a day, two things are clear: 1) Saudis are feeling a market slump, probably due to the refinery’s maintenance season in Asia and a new wave of closures due to of the most virulent new strain of 19, and none of the other producers can afford to reduce production (nor is it willing to do so). 2) Although Saudi Arabia remains the most powerful member of OPEC, its power is being diluted …