Oil prices reached their highest point since February 2020 this week following Saudi Arabia’s surprise announcement at the monthly OPEC + ministerial meeting that it would voluntarily extract an additional 1 million barrels per day from its oil production. This additional rebate – by the only true swing producer in the group – more than offsets the production increases granted to Russia and Kazakhstan, and is a very different result from what analysts and industry experts had expected.
Saudi Arabia and Russia – the two most powerful members of the OPEC + alliance – disagreed on how to respond to the changing oil market and reduced demand. Russia is concerned that US shale will benefit from any drop in production OPEC + members make. And it is not completely wrong. Russia is focused on market share. Saudi Arabia, on the other hand, is focused on price. Although the word “price” is never used. Instead, the phrase “market equilibrium” or “market equilibrium” is preferred. With Saudi Arabia cutting a million barrels a day, two things are clear: 1) The Saudis are feeling a slack in the market, likely due to the refinery maintenance season in Asia and a new wave of lockdowns due to the new, more virulent strain of Covid-19, and none of the other producers can afford (nor are willing) to further reduce production. 2) Although Saudi Arabia remains the most powerful member of OPEC, its power has been diluted …