A Saudi Energy Ministry official said today, Monday, that the Ministry directed the National Oil Company (Aramco) to reduce its production of crude oil for June by an additional voluntary amount of one million barrels per day, above the reductions already promised by the Kingdom under the OPEC Plus agreement.
“With this, the total production cut that the Kingdom will implement will reach about 4.8 million barrels per day from the April production level,” the official added, “The Kingdom’s production for June – after the targeted and voluntary reduction – will be 7.492 million barrels” per day.
This decision comes at a time when Riyadh announced today “painful” measures to save the budget from the great deficit. These measures included increasing the value-added tax from 5% to 15% starting from the first of next July, and stopping the exchange of the cost of living allowance as of next June.
The decision to cut oil production also comes days after Reuters published details of a stormy call between Crown Prince Mohammed bin Salman and US President Donald Trump, in which the latter threatened to cut military support if the kingdom did not stop dumping markets, in the wake of a price war sparked by Riyadh and led to a reduction A historic collapse in crude prices, hurting the US shale oil industry.
Observers question whether the production cut came under Trump’s pressure to ease the burdens on Washington, and they also questioned whether the large deficit that the Saudi budget will witness in the wake of this reduction will be met by a further increase in burdens on citizens.
And oil expert Mohamed Yaqoub Al-Sayed says that there are many factors that led to the decision to reduce the Kingdom today, and perhaps the most prominent of them is Riyadh’s attempt to move quickly to influence the volume of supply in the oil markets and push prices to rise.
In an interview with Al-Jazeera Net, the oil expert did not prepare to be among these factors, the pressures that Trump exerted on the Saudi leadership.
Al-Sayyed stressed that the decision to reduce will greatly affect the budget of Saudi Arabia, as it will be deprived of part of the revenues, but he went on to say that Riyadh made this move in the hope that oil prices will rise in the markets.
He also said that the measures taken by Riyadh today to raise the added value from 5% to 15% may fall within the framework of compensating the losses that will be incurred due to the reduction in production.
The finance minister said that the package of new measures and “if there is pain, it is necessary to maintain financial and economic stability,” adding that it aims to save about thirty billion dollars.
In the wake of the Saudi decision, oil prices rose today, recovering from losses earlier in the session, but fears – about a second wave of Corona virus infections – curbed the gains.
By 12:42 UTC, Brent crude was up 0.2% to $ 31.04 a barrel, while US West Texas Intermediate rose 1% to $ 24.94.
The global demand for oil has plummeted by 30%, as the pandemic shrinks transport traffic around the world, leading to an increase in stocks globally.
To reduce surplus supplies, the Organization of Petroleum Exporting Countries (OPEC) and producers allied to it, in the framework of what is known as the OPEC Plus group, agreed to reduce production from the beginning of the current May about ten million barrels per day, in an effort to support prices.