Oil workers stand on a new rig Tuesday, June 17, 2008, in the Sakhir, Bahrain, desert. Saudi Arabia and allied oil producing countries face a decision Sunday, June 2, 2024, on whether to extend production cuts set to expire next month — a move that could push oil prices higher as the summer travel season increases demand for fuel and as the U.S. presidential election contest heats up. (AP Photos/Hasan Jamali, File)
FRANKFURT, Germany — Saudi Arabia and allied oil-producing countries on Sunday extended output cuts through next year, a move aimed at supporting slack prices that haven’t risen even amid turmoil in the Middle East and the start of the summer travel season.
The OPEC+ alliance, made up of members of the producers cartel and allied countries including Russia, extended three different sets of cuts totaling 5.8 million barrels a day.
International benchmark Brent has loitered in the $81-$83 per barrel range for the past month. Even the war in Gaza and attacks on shipping in the Red Sea by Houthi rebels in Yemen have not pushed prices up toward the $100 per barrel level last seen in September 2022. Reasons include higher interest rates, concerns about demand due to slower than desired economic growth in Europe and China, and rising non-OPEC supply including from U.S. shale producers,
Yet the Saudis need higher oil prices to fund ambitious plans by Crown Prince Mohammed bin Salman to diversify the country’s economy away from fossil fuel exports. Higher oil prices would also help Russia maintain economic growth and stability as it spends heavily on its war against Ukraine.
READ: Saudi looking to transform from petroleum-based to tech-focused economy
Analysts say the cuts could push oil prices higher in coming months, but much depends on demand for oil going forward. The summer usually sees a spike in demand through the July-September quarter, but uncertainty about demand grows after that.
Weak oil prices
U.S. motorists have benefitted from weaker oil prices. Gasoline prices have been quiescent recently, averaging $3.56 per gallon last week, a penny less than a year ago. That is down from a record national average high of $5 per gallon in June 2022. U.S. prices can vary by region and Western states have been paying more, with gas hitting an average $5.05 per gallon in California.
U.S. gas prices rise along with crude because the price of oil makes up half the cost of a gallon of gasoline. The price swings are much smaller in Europe because there taxes make up a bigger proportion of the price of fuel.
The cuts that are being extended break down as follows: 2 billion barrels a day agreed among all 23 OPEC+ members were extended through the end of 2025, according to an OPEC statement.
READ: OPEC+ producers extend oil output cuts to second quarter
Then, voluntary reductions of 1.65 million barrels a day by a smaller group of members was extended until end 2025 as well, according to a report on the official Saudi Press Agency.
And another 2.2 million barrels a day in voluntary cuts, due to expire at the end of this month, were extended until September but would then be gradually reduced month by month until they are eliminated by September 2025.