Saudi Arabia cuts oil production, but prices drop up to 2%

by worldysnews
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Oil Prices Fall After Saudi Arabia Announces Production Cut

Oil prices have fallen up to 2% since Saudi Arabia announced a production cut on Sunday June 4. However, the Mexican export mix has experienced a slight gain in this period.

Saudi Arabia Commitment to Production Cut

Saudi Arabia, one of the largest crude oil producers in the world, announced on June 4 that it would stop pumping 1 million barrels per day during July. This announcement was made during the meeting of OPEC+ (Organization of Exporting and Producing Countries and their allies). The move is an attempt to stabilize oil prices, which have been fluctuating due to the ongoing COVID-19 pandemic.

US and China Economic Data

Ana Azuara, a commodity analyst at Banco Base, suggested that the production cut could be an indication that Saudi Arabia is anticipating a future decrease in oil demand. This concern may have been triggered by economic data in the United States and China, both of which are the largest oil consumers in the world. Recent economic activity data in the US has been weak, which has exacerbated the likelihood of a recession. Weak economic indicators in China have also added to the downward pressure on petroprices.

Crude Prices Fluctuations

Crude prices reacted with gains after Saudi Arabia’s announcement, with the Mexican mix gaining by more than 4% on June 5. However, these increases were short-lived, as crude prices fell later in the week. On Thursday, WTI and Brent dropped more than $3 after media reports suggested that a suspected nuclear deal between the United States and Iran was imminent. These reports were denied by both countries, however, crude prices had already experienced significant losses by that point.

Possible Reversal of Trend

Last week, the US recorded a rise in gasoline demand, which could potentially lead to future stabilization of crude prices. However, crude oil has experienced two consecutive weeks of losses and may continue to experience fluctuations in the coming months.

Mixed Results for Oil Companies

The biggest oil companies on the stock market have recorded mixed results in the past week, despite the decrease in oil prices. Chevron saw a weekly rise in its shares of 1.66%, and Exxon Mobil’s shares rose by 1.54%. Meanwhile, shares of the French Total Energies fell 0.42% and the British Shell remained relatively unchanged.

Future of Crude Prices

Crude prices are down about 40% from last year due to a decrease in the supply of crude oil. The Banco Base analyst ruled out the possibility of crude returning to the levels it saw a year ago, and suggested the most likely scenario is crude continuing to operate in a range between 67 and 76 dollars per barrel over the next few months.

As of now, Brent is down 12.94% in 2021, WTI is down 12.57%, and the Mexican mix is down 7.39%.

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