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Saudi Arabia scorches speculators and Washington as analysts predict $100 oil

Saudi Arabia flexes its energy muscles, recruiting fellow Middle Eastern producers to cut production in Sunday surprise
Saudi Crown Prince Mohammed bin Salman attends the "APEC Leaders' Informal Dialogue with Guests" event during the Asia-Pacific Economic Cooperation (APEC) summit in Bangkok, on 8 November 2022 (AFP)

Oil prices could jump to $100 a barrel, Goldman Sachs predicted on Sunday, following a surprise move by a Saudi-led group of oil-producing nations to slash output by one million barrels a day starting next month.

In a note to clients on Sunday, Goldman analysts raised their December 2023 forecast for Brent crude, the international benchmark, by $5 to $95 a barrel and predicted crude prices hitting $100 a barrel in December 2024.

“Today's surprise (production) cut is consistent with the new OPEC+ doctrine to act preemptively because they can without significant losses in market share," the US investment bank said, according to Reuters.

The move follows a two million barrels a day (bpd) cut announced by Saudi-led Opec and a group of other producers led by Russia in October. That decision was blasted by the US, which accused Riyadh of siding with Russia amid its invasion of Ukraine.

The US has tried to stem Russia’s ability to tap its vast energy reserves to fund its war effort by backing a series of price caps.

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On Sunday, Saudi Arabia said it would voluntarily cut 500,000 bpd - about five percent of its output - in “co-ordination with some other Opec and non-Opec countries”.

Russia, which has been selling its oil at steep discounts as a result of western sanctions, announced an output cut of 500,000 bpd earlier this month which will remain throughout the year. 

United front

Middle Eastern producers that have recently expressed frustration with limiting their production signed on to the cuts. Iraq is cutting output by 211,000 bpd; the UAE 144,000 bpd; Kuwait 128,000 bpd; Algeria 48,000 bpd; and Oman 40,000 bpd, according to the countries' governments.

Abu Dhabi publicly defended the Opec+ October cut, but US officials say the Emiratis privately expressed opposition to the move. In March, the WSJ reported the UAE was considering leaving Opec as a result of differences with Saudi Arabia. Emirati officials denied the reports.

Saudi Arabia defended Sunday’s cut as necessary to support oil prices, which have dropped from record levels last year amid rising recession risks. The kingdom hasn’t been immune to global economic headwinds. The collapse of SVB Bank in the US was followed by a run on the embattled Credit Suisse Bank which nearly wiped out all of Saudi National Bank’s stake in the lender.

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The Biden administration’s decision to rule out adding to the US strategic stockpile of energy reserves has sent prices lower. Saudi Arabia’s state media said Sunday’s production cut was “a precautionary measure aimed at supporting the stability of the oil market”.

Saudi Arabia is working to reduce its reliance on fossil fuels but needs the windfall from high energy prices to fund its mega projects like the $500bn futuristic city of Neom and a new airline.

As a result of global economic concerns, some speculators have bet that oil prices would fall further.

Sunday’s decision, with no warning, came as a jolt. The cut bore the hallmarks of Saudi Energy Minister Prince Abdulaziz bin Salman antipathy towards speculators. In 2020 he famously vowed, “whoever gambles on this market will be ouching like hell.”

Brent crude prices were trading up 6.4 percent Monday evening GMT at $85.01 per barrel.


Unlike the surprise October cut, Washington has been more muted this time. National Security Council spokesman John Kirby told reporters on Monday the US was “given a heads up” on the cut, as he sought to brush off concerns about a deeper rift.

"We don't think that production cuts are advisable at this moment, given market uncertainty," Kirby told reporters.

The United States "made that clear" he said, but "we're focused on moving ahead here”.

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Kirby differentiated between the market situation today and last year. "We're also just in a different place,” he said, noting that crude prices are at around $80 a barrel, compared to as much as $120 one year ago.

"We're focused on prices," he said.

Asked about the troubled relationship with Saudi Arabia, Kirby said the country "is still a strategic partner" but "we don't always see eye to eye on everything”.

The cut underlines how Riyadh and Washington have drifted apart as the traditional oil-for-security partnership that underlined the relationship for nearly seven decades frays.

Earlier this month, the Saudis agreed to restore diplomatic ties with Iran, in a breakthrough deal brokered by China.

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