Saudi Arabia refuses to curb falling oil prices - FT
Photo: Oil prices will fall after Saudi Arabia's decision (Getty Images)
Saudi Arabia intends to abandon its unofficial oil price target of $100 per barrel. The country plans to increase production to regain market share, even if it means lower prices, the Financial Times reports.
The Organization of the Petroleum Exporting Countries, which is led by Riyadh, along with its allies, including Russia (OPEC+), are cutting oil production to support prices. However, since the beginning of the year, prices have declined amid increased supply from other producers, especially the United States, as well as weak demand growth in China.
Saudi Arabia has decided that it does not want to continue to cede market shares to other oil producers and believes it has enough financing options, including foreign exchange reserves and debt, to withstand a period of low crude oil prices, the FT writes.
The Kingdom, the world's largest oil exporter, has taken on a significant portion of the OPEC+ production cuts, reducing its production by about 2 million barrels per day from the end of 2022. Currently, OPEC+ members are cutting production by 5.86 million barrels per day, equivalent to about 5.7% of global oil demand.
The Financial Times reported that the group intends to increase production as planned from December 1, even if it means a longer period of low oil prices.
In the past, Saudi Arabia has increased production to protect its market share. In 2020, Saudi Arabia and Russia engaged in a price war, flooding world markets with oil after Moscow refused to support OPEC's decision to cut production more substantially to combat the effects of the COVID-19 pandemic.
In 2014, Riyadh blocked calls by some OPEC members to cut production to stop the fall in oil prices, which created conditions for a struggle for market share between OPEC and non-OPEC countries amid a shale oil boom in the United States.
OPEC and Saudi Arabia have repeatedly stated that they do not set a certain price for oil and make decisions based on market fundamentals and in the interests of balancing supply and demand.
Following the Financial Times article, the global price of Brent crude oil fell by about 2% to $72 per barrel.
Revenues from oil sales are the main source of funding for Russia's war against Ukraine. The Russian government predicts a decline in oil and gas revenues over the next three years due to lower energy prices. The Russian oil and gas industry is expected to pay $118 billion in taxes next year.
