The latest production cuts by Saudi Arabia, the world’s largest oil exporter, underscore the intense pressure the oil crash has put on the Middle East nation’s budget.
“They need to get prices higher and stabilize the oil market because that’s their ATM,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.
A Saudi Energy Ministry official told state media that the kingdom hopes the additional cuts will “encourage” OPEC+ and “other producing countries” to provide “additional voluntary cuts” to support oil markets.
“Just a few weeks ago, Saudi Arabia was flooding the market with oil. Now they are totally reversing their stance,” said Ryan Fitzmaurice, energy strategist at Rabobank.
Oil markets were mixed in choppy trading in response to the latest rescue efforts by Saudi Arabia.
US crude climbed nearly 2% to $25.20 a barrel Monday morning. Brent, the world benchmark, was little changed at $31 a barrel. That’s well below the roughly $80 a barrel that Saudi Arabia needs to balance its budget.
That’s why Saudi Arabia is making yet more cuts in June and potentially before then as well. State media reported that the Saudi Energy Ministry has directed Saudi Aramco, the national oil company, to “seek to reduce” production during May as well “in consent with its customers.”
“It’s just one more sign that the price war is definitively over. Saudi Arabia is back in whatever-it-takes mode,” said Croft, the RBC analyst.