New Delhi: Saudi Arabia and Russia, two of the world’s largest oil producers, have made additional earnings of billions of dollars in the recent past by reducing their oil output. The production cuts, which were announced in July 2023, have pushed up global crude oil prices, which have risen from $76 per barrel to $93 per barrel in three months.
According to the Wall Street Journal¹, Russia earned an extra $2.8 billion from oil exports this quarter compared to the period between April and June, while Saudi Arabia earned an extra $2.6 billion. This means that both countries gained about $30 million a day from their voluntary production cuts.
The production cuts were part of an agreement among the OPEC+ group, which includes Saudi Arabia, Russia and other oil-exporting countries. The group decided to cut its output by 2 million barrels a day in October 2020 to balance the oil market, which was hit by the COVID-19 pandemic and the subsequent drop in demand. The group has since gradually eased the cuts, but Saudi Arabia and Russia decided to extend their additional cuts of 1 million barrels a day and 500,000 barrels a day respectively until the end of the year.
The production cuts have helped to tighten the supply of oil in the market, while the demand has recovered as the global economy has reopened. This has created a bullish scenario for oil prices, which have reached their highest levels since 2014. Some analysts have predicted that oil prices could soon hit $100 per barrel, as the industry faces underinvestment and chronic undersupply.
The higher oil prices could benefit both Saudi Arabia and Russia, as they rely heavily on oil revenues for their budgets. Saudi Arabia is pursuing various ambitious spending projects, such as its Vision 2030 plan to diversify its economy and its NEOM mega-city project. Russia is facing international sanctions and military costs due to its war on Ukraine.
However, the production cuts could also have some negative consequences for both countries, as they could lose market share to other producers, such as the United States, which has increased its shale oil output. The higher oil prices could also hurt the consumers and businesses in the importing countries, such as India, which is one of the largest buyers of Saudi and Russian oil. The higher oil prices could also increase inflation and hamper the economic recovery from the pandemic.