Despite continuous efforts to diversify their economies away from oil, its production and exports have been the main contributor to the GDP of many countries around the world. Governments often intensify their work to explore new reserves and build refining plants to export their products worldwide. However, as the coronavirus pandemic weakened the global demand, several exporting countries decided to cut their production to mitigate the huge losses borne by their economies every day.
As the world’s biggest oil exporter, the Kingdom of Saudi Arabia recently announced it would further cut its daily production by one million barrels. The Ministry of Energy said in a statement cited by the official Saudi Press Agency that the move will reduce the Kingdom’s production to 7.5 million barrels per day. In similar moves, the United Arab Emirates and Kuwait committed to cut production by a total of 180,000 barrels per day. Kazakhstan has also ordered producers in large and medium-sized oil fields to cut oil output by around 22% in the May to June period.
Last month, OPEC and the OPEC+ group to reduce production by a record 9.7 million barrels per day while other producers pledged to reduce their output by around 3.7 million barrels per day. These cuts in conjunction with the world's biggest economies relaxing lockdown measures and stoking a gradual recovery in fuel demand are expected to ease pressure on crude storage capacity. Initially, the objective of these cuts, as announced by the Saudi ministry of energy, is to stabilise the oil market given the weakened demand.
Oil prices lost two-thirds of their value this year due to a coronavirus-driven slump in demand.
The additional cut aims to emphasise the same objective especially after oil prices remain extremely low following the first round of massive cuts which kicked in on the first of May. Nevertheless, Experts say that the worst scenario may be behind us and demand will soon go back to normal, unless a second wave of the outbreak escalates in some of the large economies like China and some parts of Europe. The U.S. may need a longer time to recover since it is the world’s worst hit by the novel coronavirus pandemic.
In April, Saudi Arabia increased its production reaching 12.3 million barrels per day in what was described as “prices war” with the giant oil production, Russia. But this figure will be 4.8 million less at the beginning of June after the series of production cuts. There is no doubt the plunged oil prices will continue to impact most economies around the world during 2020 with expectations that the situation may get better starting from next year. Until then, countries will likely adjust and readjust their strategies to acclimate to the new normal.