Oil price rises after Saudi Arabia decides to cut its daily production

Saudi Arabia’s decision, announced this Sunday (4th), to make a cut of 1 million in its daily production of barrels of oil as of July, caused a sudden increase in commodity prices this Monday morning (5th).

The price of Brent oil, a world reference, rose by around 6.3%, reaching US$ 76.71 a barrel, the highest value since October 2022.

WTI crude, traded in New York, was up 4.1% to settle at $72.15.

Saudi Arabia’s oil production is expected to be 9 million a day from July. The Arab country, which previously had a daily average of 10 million barrels in production, opted for the cut with the objective of keeping oil sales prices above US$ 80, which would help balance its fiscal budget. The decision is part of an agreement by the Organization of Petroleum Exporting Countries (OPEC+), which wants to limit the supply of the commodity in order to raise its price.

OPEC+ countries produce about 40% of the world’s oil and have cut their production target by a total of 3.66 million barrels of oil per day, amounting to 3.6% of global production.

Goldman Sachs analysts told Reuters the production deal was “moderately bullish” for oil markets and could lift Brent prices this December by between $1 and $6 a barrel, depending on how long Saudi Arabia decides to continue maintaining its daily production at 9 million barrels.

“The immediate impact of the Saudi cut on the market is likely to be minor, as lifting inventories takes time, and the market has likely already placed some significant probability on a cut today,” the bank’s analysts added.