Is that the real reason behind Saudi Arabia's crude production cuts?

Economies.com
2023-09-22 17:57PM UTC

Saudi energy minister Abdulaziz bin Salman Al Saud said this week about the recent Saudi and Russian decision to cut production "It's not about prices, but rather about taking the right decisions based on data".

 

When Saudi Arabia took the decision to extend the voluntary production cuts, everyone thought it was about the price and the support for the ambitious Saudi budget. 

 

However, Saudi Arabia doesn't share that view itself, and actually shares many concerns with oil traders about growth struggles in Europe and other economies, which could impact prices and demand. 

 

Thus Saudi Arabia is worried about weakening global demand as the global economy slows down, which promoted it to intervene and cut production to underpin prices. 

 

The Saudi oil minister also said he doesn't share the International Energy Agency's view that global oil demand will peak before 2030.. adding he won't believe it until he sees it. 

 

Indeed, demand and supply forecasts are not very accurate, and an example is the exaggerated growth forecasts for Chinese growth this year which were supposed to boost prices. 

 

However prices were stubbornly weak despite the record Chinese demand, prompting Saudi Arabia and Russia to directly intervene and boost prices. 

 

 

It also doesn't look like there's a particular rush to oil alternatives, as demand remains strong even as EV car sales continue to surge in both Europe and the US. 

 

All this proves that oil demand is extremely flexible, and no surprise there, thus the Saudi oil minister isn't at all concerned. 

 

However, he outright criticized the International Energy Agency as a political mouthpiece that started to lose credibility. 

 

He pointed to unrealistic expectations for the usage of renewable solar and wind energy to generate power, including fuel for cars, instead of oil and gas, while asking investors to put their money according to such shaky basis.

 

To the complete opposite of this, Aramco CEO has recently criticized the IEA and called for increased investments in oil and gas to avoid another crisis in the medium term, which could force countries to use coal and other cheaper products.

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