Saudi Arabia to Extend Voluntary Cut of 1 Million Barrels Per Day Until the End of the Year (Micro News for September 9, 2023 – September 15, 2023)

Iordache, Ruxandra
CNBC.com

Posted 09/05/2023

Keywords

supply, demand, equilibrium, OPEC, oil prices

Current News Topic

# 2 Supply Demand and Market Equilibrium

Article Synopsis

Oil exporting giant Saudi Arabia released a statement saying the nation would continue to limit crude oil output by 1 million barrels a day for the rest of 2023. The cut leaves Saudi crude oil output at 9 million barrels of oil a day for the last quarter of the year. However, the nation did indicate it would review the policy every month. Other Organization of Petroleum Exporting Countries (OPEC) have collectively reduced oil output another 1.66 million barrels per day through 2024.

Russia, while not a member of OPEC, also agreed to limit output by 300,000 barrels a day through the end of 2023. The production and export cuts are not mandatory for OPEC members but are listed as voluntary since they are not official OPEC policy. The cuts pushed oil futures higher but not enough to overcome the revenue loss to the oil exporting nations. However, during the summer of 2023, oil prices surged by over $10 per barrel because of production disruptions due to Hurricane Idalia and political risks in Gabon.

Most of the OPEC nations rely on oil revenue to fund their governments, so cutting production and exports reduces funds available to spend on government programs. Because of this overreliance on oil, Saudi Arabia has been developing massive projects in other industries to diversify its revenue streams and economy.

Exercise 1 Questions

1. Graphically show the impact of a hurricane in the Gulf of Mexico on the price of oil.

2. Graphically show the impact of the voluntary production cuts by OPEC and other oil exporting nations.

3. True or False: Saudi Arabia cut oil production by 1 million barrels a day through 2024.

Exercise 2 Discussion Questions

1. Why did OPEC and other nations reduce oil output?
NOTE TO INSTRUCTOR: Look up the monthly price of oil over the past 10 years and discuss it in class.

2. Why are the production cuts voluntary?
NOTE TO INSTRUCTOR: Have the students look up the current OPEC members and discuss them in class. Which nations are likely to continue current levels of production?

3. Why did OPEC form?
NOTE TO INSTRUCTOR: Look up the history of OPEC and the impact on oil prices in the early years.