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HomeNews WireSaudi Arabia's Energy Minister Denies Recent Oil Cuts Aimed at Boosting Prices

Saudi Arabia’s Energy Minister Denies Recent Oil Cuts Aimed at Boosting Prices

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Saudi Arabia’s oil minister has denied allegations that recent production cuts were aimed at boosting oil prices, stating that the decisions were based on data rather than price manipulation. Speaking at the World Petroleum Congress in Calgary, Energy Minister Prince Abdulaziz bin Salman highlighted uncertainties in oil consumption in China, the manufacturing slump in Europe, and the course of inflation and interest rates in North America and Europe as factors influencing the decision.

According to Prince Abdulaziz, supply and demand forecasts are not always reliable, and it is better to wait for reality to unfold before making decisions. He also criticized the International Energy Agency (IEA), accusing them of moving from being a market forecaster to practicing political advocacy.

However, the IEA is not the only forecaster expecting a significant depletion of oil inventories, with oil traders also sharing this view based on the strong backwardation in futures contracts over the next six months. Saudi Arabia and Russia’s additional production cuts are set to remove a total of 125 million barrels of crude from the market by the end of September and 245 million barrels by the end of December if fully implemented.

Meanwhile, the economic outlook in the United States has improved, with faster growth, slower inflation, and the potential end or pause of interest rate rises by the central bank. The combination of slower oil production and faster consumption has transformed the outlook for inventories, prices, and calendar spreads. Although the exact contributions from production cuts and economic growth are uncertain, it is reasonable to assume that output cuts have accounted for a significant portion of the increase in prices and spreads.

Despite the rise in crude prices, they remain moderate compared to previous periods of high prices once inflation is taken into account. In real terms, prices would need to average $110 per barrel to be in the 75th percentile since 2000 and $146 to reach the 90th percentile.

From a producer perspective, real prices are not considered very high yet, suggesting there may be room to further increase prices without negatively impacting consumption and revenues.

It is important to note that the views expressed in this analysis are those of John Kemp, a Reuters market analyst, and do not represent the official stance of the news organization.

More detail via Reuters here… ( Image via Reuters )

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