(Reuters Breakingviews) – Prince Abdulaziz bin Salman thinks he needs to sweeten his oil lollipop. The Saudi energy minister has announced that the world’s top oil exporter will extend its 1 million barrels a day production cuts for another three months until the end of this year. The move, part of a co-ordinated output reduction by the Organization of the Petroleum Exporting Countries and allies including Russia, sent Brent futures briefly touching $90 a barrel, a first since last November. It also reflects deeper worries.
On the surface, global trends are helpful for oil, reducing the need for extended OPEC+ cuts. The U.S. economy has been more resilient than thought and China is on a mission to defend its weakening economy. Adding to that is a decline in U.S. crude oil inventory.
But there are complications. Besides uncertainties over the effectiveness of China’s latest property measures, one surprise has been the strength of Iranian supplies, which are set to rise by 1 million barrels this year to 3.5 million barrels per day by late September. Moreover, Washington may not sit idly by if higher oil prices sabotage the Federal Reserve’s inflation target and damage the economy. Abdulaziz’s best shot is to keep the momentum high for as long as he can. (By Yawen Chen)
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
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