Oil producers’ cuts could boost gasoline prices, help Russia

FRANKFURT: Major oil-producing countries led by Saudi Arabia said they’re cutting supplies of crude again.

This time, the decision was a surprise and is underlining worries about where the global economy might be headed.

Russia is joining in by extending its own cuts for the rest of the year.

In theory, less oil flowing to refineries should mean higher gasoline prices for drivers and could boost the inflation hitting the US and Europe.

And that may also help Russia weather Western sanctions over its invasion of Ukraine at the expense of the US.

The decision by oil producers, many of them in the OPEC oil cartel, to cut production by more than 1 million barrels a day comes after prices for international benchmark crude slumped amid a slowing global economy that needs less fuel for travel and industry.

It adds to a cut of 2 million barrels per day announced in October.

Between the two cuts, that’s about 3 per cent of the world’s oil supply.

Here are key things to know about the cutbacks:

Why are oil producers cutting back?

Saudi Arabia, OPEC’s dominant member, said Sunday that the move is precautionary to avoid a deeper slide in oil prices.

Saudi Energy Minister Abdulaziz bin Salman has consistently taken a cautious approach to future demand and favoured being proactive in adjusting supply ahead of a possible downturn in oil needs.

That stance seemed to be borne out as oil prices fell from highs of over USD 120 per barrel last summer to USD 73 last month.

Prices jumped after Sunday’s announcement, with international benchmark Brent crude trading at about USD 85 on Monday, up 6 per cent.

With fears of a US recession exacerbated by bank collapses, a lack of European economic growth and China’s rebound from COVID-19 taking longer than many expected, oil producers are wary of a sudden collapse in prices like during the pandemic and the global financial crisis in 2008-2009.

Capital markets analyst Mohammed Ali Yasin said most people had been waiting for the June 4 meeting of the OPEC+ alliance of OPEC members and allied producers, most prominently Russia.

The decision underlined the urgency felt by producers.

“It was a surprise to all, I think, watchers and the market followers,” he said.

The swiftness of the move, the timing of the move and the size of the move were all significant.

” The aim now is to ward off “a continous slide of the oil price to levels below USD 70 per barrel, which would be very negative for producer economies,” Yasin said.

Part of the October cut of 2 millions barrels per day was on paper only as some OPEC+ countries aren’t able to produce their share.