May 22, 2024
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Doubt in Oil Demand as Saudi Extends Production Cuts

The Kingdom of Saudi Arabia had last week said it would extend its voluntary production cuts of 1 million barrels daily of crude until the end of the year.

At the same time, the kingdom left its official selling prices for Asia unchanged for deliveries in the last month of the year as refiners’ margins weakened.

The two moves according to, have prompted fresh doubts about the outlook for oil demand, with some expecting Saudi Arabia’s behaviour might indicate uncertainty about it. Oil demand and its future have become one of the great conundrums of our time.

Earlier this week, Saudi Arabia’s state energy major Aramco reported a 23% decline in profits for the third quarter, citing lower oil prices and lower sales—the latter a result of the voluntary cuts.

The result was expected, and, in fact, it was better than analysts had predicted. Yet, it did raise doubts about the robustness of oil demand down the road.

Reuters’ energy columnist Clyde Russell has become the latest to express these doubts, saying in a column this week that “The extension of the additional 1 million bpd cut is perhaps a tacit admission that crude oil demand isn’t as strong as OPEC has been expecting.”

It may well be the case that OPEC had overestimated oil demand, yet it is also possible that it is impossible for any player on the oil market to keep stock and hold sway over all the factors influencing prices.

The latest price decline, for instance, is taking place amid weakening doubts about Middle East supply disruption because of the Israel war with Hamas.

In the West, the European Union recently held an emergency meeting to discuss the unenviable state of its fuel inventories and the possibility of setting up something like a strategic reserve of diesel. This does not exactly suggest a lower demand for oil and its products but rather a lower-than-desired supply.

At the same time, however, OPEC exports are on the rise, which has pressured prices as it might suggest there is ample supply, quenching fears about a shortage.

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