Oil producers, primarily the Saudis, decided to continue reducing supply in response to low prices.

The OPEC+ announcement did not address the fate of another group of voluntary cuts, which involve a decrease of 2.2 million barrels per day by some alliance members, such as the Saudis.

Jun 3, 2024 - 12:55
Jun 3, 2024 - 12:58
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Oil producers, primarily the Saudis, decided to continue reducing supply in response to low prices.

Saudi Arabia and its oil producing allies have decided to prolong production cuts into the following year in order to bolster low prices, which have remained stagnant despite unrest in the Middle East and the beginning of the summer travel season.

The OPEC+ alliance, consisting of members of the producers' cartel and allied countries like Russia, agreed during a virtual meeting to maintain their current production levels, including combined cuts of 2 million barrels per day, until December 31, 2025.

The Saudis require increased oil prices in order to finance ambitious plans by Crown Prince Mohammed bin Salman to shift the country's economy away from dependence on fossil fuel exports. Elevated oil prices would further aid Russia in sustaining economic growth and stability amidst substantial expenditures on its conflict with Ukraine.

The OPEC+ announcement did not specify the fate of another round of voluntary cuts, which involve a reduction of 2.2 million barrels per day by a smaller faction of alliance members such as the Saudis. Analysts anticipated the extension of those one-sided reductions, which are set to expire by the end of the month.

Brent, a global benchmark, has hovered around the $81-$83 per barrel range for the last month. The conflict in Gaza and assaults on vessels in the Red Sea by Houthi rebels in Yemen have not caused prices to rise to the $100 per barrel mark seen in September 2022. US drivers have experienced advantages from lower oil prices due to reasons such as elevated interest rates, worries about demand from sluggish economic growth in Europe and China, and an increase in non-OPEC supply, especially from US shale producers. Gasoline prices have remained stable, with an average of $3.56 per gallon last week, just one cent lower than a year ago. That is lower than the all-time high national average of $5 per gallon in June 2022.

Gasoline prices in the US have increased due to the fact that crude oil prices account for 50% of the total cost per gallon. In Europe, the price fluctuations are minimal due to the higher proportion of taxes in the fuel price.

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