Saudis production cuts
Industry

Saudis Focusing Hard When It Comes to Production Cuts

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When the agreement by OPEC nations to reduce production to stimulate what’s been a stagnant price for a barrel of oil was first announced, the expectation was that the agreement wouldn’t last. The reason was that the particular interests of certain countries would take precedence over such allegiances, thereby rendering the pact worthless.

That may still end up happening, yet Saudi Arabia is doing its best to show that they plan to adhere to their word. The Kingdom announced on January 12 that they’ve already reduced their daily production to below 10 billion barrels per day.

That’s even further below the 10.05 million that they had pledged for this year’s second quarter and is expected to be 40 percent of the total OPEC cut.

The impact of the comments from Saudi Energy Minister Khalid al-Falih certainly got the attention of markets, with oil futures jumping up 1.9 percent. That was one day after news that American refineries had used a record 17.1 million barrels the previous week, helping push prices up 2.8 percent.

Saudi Arabia is now at its lowest production level since February 2015 and appears ready to resist temptations to break their pledge. They’ve even noted that a deeper cut will take place in February. At an OPEC meeting set for May in Vienna, the Saudis and the other countries will take the time to look at the current state of the market and determine if further cuts are necessary.

One market strategist indicated that there’s greater faith in Saudi Arabia living up to its pledge, as opposed to other countries that lack the economic depth that the Saudis still possess. The ever-ravenous oil requirements of China are a temptation that some of those other nations may be unable to resist.

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