Saudi Arabia Announces Additional 1 Million Barrel Production Cut, Oil Prices Surge

OPEC+ Plans Slight Production Increase but Prices Fall Due to Saudi Cuts
Saudi Explains "Decision for OPEC+ and Oil Industry"
Copper Prices Reach 8-Year High Amid Economic Recovery Expectations

[Asia Economy Reporter Naju-seok] International oil prices surged as Saudi Arabia abruptly announced it would cut daily crude oil production by 1 million barrels. Copper prices, known as the 'Dr. Copper' for their use as an economic indicator, reached an eight-year high.

On the 5th (local time) at the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil for February delivery closed at $49.93 per barrel, up 4.9% ($2.31) from the previous trading day. Despite the OPEC+ (Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies) agreement to reduce production cuts (i.e., increase production compared to current levels), oil prices rose as Saudi Arabia announced its own production cut policy.

Abdulaziz bin Salman, Saudi Arabia Minister of Energy
[Image source=Reuters Yonhap News]

OPEC+ initially planned to decide the production cut scale in a same-day meeting the previous day but held an additional meeting due to disagreements among member countries. Through this meeting, OPEC+ agreed to reduce production in February and March by 7.125 million barrels per day and 7.05 million barrels per day, respectively, compared to October 2018 production levels. This represents a slight increase of 75,000 barrels per day compared to January production this year. However, the production increase was limited to Russia (65,000 barrels) and Kazakhstan (10,000 barrels) only, not the entire membership. After confirming the slight production increase policy, Saudi Arabia’s Minister of Energy, Abdulaziz bin Salman, announced that Saudi Arabia would independently cut production by 1 million barrels per day. Minister bin Salman described the decision as "a decision for the economy and oil industry of Saudi Arabia and OPEC+" and "a sovereign political decision." It was said that Crown Prince Mohammed bin Salman made the decision personally.

However, foreign media raised doubts about the background of Saudi Arabia’s independent production cut decision. While the reduction in oil supply on the market could provide an opportunity for oil prices to recover, questions arose as to why Saudi Arabia would increase its production cut alone, potentially benefiting competitors such as Russia or U.S. shale companies. Indeed, Russian Deputy Prime Minister Alexander Novak commented, "(Saudi Arabia’s) production cut decision will be a great gift to the industry in the new year." Following Saudi Arabia’s voluntary production cut announcement, global oil companies such as ExxonMobil and BP saw their stock prices surge by 7%. Additionally, Minister bin Salman stated that other OPEC member countries would also follow Saudi Arabia’s 'goodwill' by cutting production by 425,000 barrels per day.

Copper prices also rose 2.43% ($191) from the previous trading day on the London Metal Exchange (LME), reaching $8,048.75 per ton. This is the highest level in eight years since January 2013. Copper prices increased due to expectations of economic recovery following the development of COVID-19 vaccines. The surge in demand within China and the expansion of investments in renewable energy-related industries in advanced countries such as the U.S. and Europe also contributed positively to copper demand.

This content was produced with the assistance of AI translation services.