Although Saudi Arabia and its allies may be considering all possible means to end the plunge in oil prices, they have few options to choose from. Since the beginning of this year, Saudi Arabia, the largest exporter of crude oil, has been supporting oil prices through production cuts. Nevertheless, on August 7, the price of Brent crude oil futures fell to a seven-month low, indicating that the capacity to reduce production was limited.
But the problem at the moment is not oversupply, but especially the decline in oil demand as the global economy cools down and trade disputes. Therefore, even if Saudi Arabia and other OPEC members decide to cut production further, they may have difficulty boosting oil prices.
As the rise in trade disputes has curbed the economic growth of the two largest oil consumers in the world, hopes for market recovery are becoming slim. As the risk of a global recession rises, prospects for oil demand may worsen.
A Saudi official, speaking on condition of anonymity, said Saudi Arabia would not tolerate further declines in oil prices and had called other oil-producing countries to discuss countermeasures. The only feasible way seems to be to deepen the current reduction. Saudi Arabia will limit oil supply next month, and will supply customers with 700,000 barrels less daily than they demand. Although this means that production in September will be lower than in August, getting all countries to agree to a continuous and significant reduction in production is another issue, and it is unclear whether Russia is willing to further cut oil supplies.
On the whole, the decline in oil is difficult to reverse. In addition to oversupply, the decline in oil demand due to trade disputes and the global economic slowdown is the main reason. But for oil-producing countries, they have no ability to improve the global economic situation to boost oil prices, and only hope to offset the impact of sluggish demand by reducing production. Saudi Arabia calls other oil-producing countries to discuss the decline in crude oil prices. In addition, a Saudi Arabian oil official said that despite strong customer demand, the country plans to control daily crude oil exports to below 7 million barrels in August and September To help digest global oil inventories and restore market balance. This has supported oil prices to some extent. However, there is still room for oil prices to fall. To get oil prices to rise further, good economic news is still needed.
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