World Oil Supply Being Reduced Again

Posted on 04/03/2023

Saudi Arabia has announced a reduction in oil supply by 500,000 barrels a day. This move is expected to last all year and a resumption in output has no specific timeline. This follows an October 2022 reduction of 2 million barrels, which caused U.S. President Joe Biden to declare there would be unspecified “consequences” which have not been forthcoming. Some see the move as an indication that demand for oil is weakening as a potential recession nears. Saudi Aramco, the state-owned entity, posted a profit of US$ 160 billion in 2022 and is currently investing in China’s petroleum industry. The company has agreed to purchase a 10% stake in Rongsheng Petrochemical Co. Ltd,, and supply 480,000 barrels per day to its refining subsidiary.

Saudi Arabia is the world’s largest oil producer and the largest exporter. However, the kingdom has diversified in recent years, acquiring stakes through its Public Investment Fund (PIF) in a number of industries including banks, cruise lines, food and beverage companies, and electronic entertainment companies including Nintendo. Saudi Arabia has been working particularly hard to bring the travel and leisure consumer segment to its shores with The Red Sea Project, while opening up for foreign investment. Saudi Arabia made it easier for investors to purchase inside the country by offering the same guarantees and abilities to buy real estate as it offers local citizens. Saudi Arabia is a member of the WTO and boasts several free trade zones. At one point the kingdom appeared poised to increase its cooperation with the west, but in recent years, the country’s plans to court countries other than the U.S., such as China and Russia, appears to be succeeding.

Diplomatic ties between the west were frayed over the death of Jamal Khassoghi in 2018 and more recent concerns about using trade outside the U.S. dollar, which in the past has been a nonstarter for U.S. leaders in Washington. A symbol of the tension is playing out in court, with former PGA players arguing that their participation in Saudi Arabia’s PIF-sponsored LIV tournaments should be allowed. The PGA would prefer not to allow them to play in the PGA after having played in LIV.

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