Why Will Saudi Arabia Cut Oil Production Again?

In February 2016, Oil was trading at around USD 30 a barrel,and experts around the world were making extremely negative predictions about the market’s future. Many energy companies were at risk of bankruptcy, and even the world’s strongest economies were showing signs of slowdown, includingChina, whichexperienced its slowest growth in 25 years. However, OPEC decided not to overreact to these alarming signs. Just 9 months later, in November 2016,a group ofOPEC and non-OPEC members decided on joint action to reduce Oil production, in the hope ofstabilising the market and improving its long-term prospects.

Two years later, Oil is trading at around USD 60 a barrel, and the series of agreements to cut outputis credited with playing a key role in drawing down the excess global supply of Oil, despite increasing US production.In early February, prices plunged,losing around USD 10 in less than 2 weeks. This fall raised concerns about the market outlook, with some investors fearing another downturn. Oil prices are still very volatile, with large price swings triggered by eachannouncement concerninginventories, US Oil production, the degree of commitment of the different nations participating in the production cut agreement, and the output of the most important producers.

Saudi Arabia has reiterated its intent to do “whatever it takes” to reach a more balanced market for its No. 1 export. After achieving a high degree of coordination and cooperation between the major producers, OPEC decided to continue to curb its Oil exports in an attempt to cut global supplies still further. Between January and March, the kingdom’slevel of production is expected to be below its cap of around 10million bpd. With another reduction of 100,000 barrel per day compared to the February level, its exports are expected to drop below 7 million bpd in March.

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