Saudi Arabia’s latest oil production cuts show it is back in ‘whatever it takes’ mode, strategist says

Voluntary production cuts by OPEC members show that oil producing countries are doing what they can to stabilize the market during the ongoing coronavirus outbreak, one strategist told CNBC this week.

Saudi Arabia on Monday said it will reduce output by an additional 1 million barrels per day from June 1, in a bid to support oil prices. Following the kingdom’s announcement, the UAE and Kuwait also announced supply cuts. That’s on top of an agreement between OPEC and non-OPEC allies, sometimes referred to as OPEC+, to lower production by 9.7 million bpd from May 1.

However, while there are “green shoots,” the outlook is unclear as the pandemic continues. More than 4.18 million people have contracted Covid-19 worldwide, and at least 286,336 people have died from the virus, according to data compiled by Johns Hopkins University.

Oil futures have been under pressure for months as the coronavirus crisis has crushed demand, while supply spiked in April amid a price war. Both major benchmarks are down more than 50% since the beginning of the year. It also remains to be seen whether the latest oil production cuts will “really shore up oil prices and help lift company revenues,” said Ellen Wald, president of Transversal Consulting. She added that it will depend on whether Russia and Iraq follow through with their commitments.

The kingdom this week announced an austerity drive that will see value-added taxes triple to 15%, cuts in government spending, and the suspension of allowances for public sector workers.

Saudi Arabia’s latest oil production cuts show it is back in ‘whatever it takes’ mode, strategist says, CNBC, May 12