Saudi Arabia and allied oil producing countries on Sunday extended output cuts through next year, a move aimed at supporting slack prices that haven’t risen even amid turmoil in the Middle East and the start of the summer travel season.
The OPEC+ alliance, made up of members of the producers cartel and allied countries including Russia, decided at an online meeting to hold steady its production levels, which include collective cuts of 2 million barrels per day, through Dec. 31, 2025.
The Saudis need higher oil prices to fund ambitious plans by Crown Prince Mohammed bin Salman to diversify the country’s economy away from fossil fuel exports. Higher oil prices would also help Russia maintain economic growth and stability as it spends heavily on its war against Ukraine.
The OPEC+ statement didn’t say what would happen to an additional set of voluntary cuts that include a reduction of 2.2 million barrels a day by a smaller group of alliance members including the Saudis. Analysts expected those unilateral cuts, which expire at the end of the month, to be extended as well.
International benchmark Brent has loitered in the $81-$83 per barrel range for the past month. Even the war in Gaza and attacks on shipping in the Red Sea by Houthi rebels in Yemen have not pushed prices up toward the $100 per barrel level last seen in September 2022. Reasons include higher interest rates, concerns about demand due to slower than desired economic growth in Europe and China, and rising non-OPEC supply including from U.S. shale producers,
US motorists have benefitted from weaker oil prices. Gasoline prices have been quiescent recently, averaging $3.56 per gallon last week, a penny less than a year ago. That is down from a record national average high of $5 per gallon in June 2022.
U.S. gas prices rise along with crude because the price of oil makes up half the cost of a gallon of gasoline. The price swings are much smaller in Europe because there taxes make up a bigger proportion of the price of fuel.