Oil prices will continue to rise as an alliance between Saudi Arabia and Russia builds. On Tuesday, the two countries agreed to extend voluntary oil production cuts through the end of the year. The Associated Press reports the decision will trim 1.3 million barrels of crude oil out of the global market. As a result energy prices will soar.
The Associated Press reports “the dual announcements from Riyadh and Moscow pushed benchmark Brent crude above $90 a barrel in trading Tuesday afternoon, a price unseen in the market since November.”
The actions will increase inflation and the price of gas at the pumps. The decision “is aimed at strengthening the precautionary measures taken by OPEC+ countries in order to maintain stability and balance of oil markets,” said Russia’s deputy prime minister and energy minister Alexander Novak.
State-run Russian news agency Tass quoted Alexander Novak, Russia’s deputy prime minister and former energy minister, as saying Moscow would continue its 300,000 barrel a day cut. Saudi Arabia made its announcement through the state-run Saudi Press Agency, stating the country still would monitor the market and could take further action if necessary. “This additional voluntary cut comes to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets,” the Saudi Press Agency report said, citing an unnamed Energy Ministry official.
The Associated Press writes White House national security adviser Jake Sullvan declined to comment on the market impact, but the actions put new pressure on Saudi Arabia’s relationship with the United States. Last year President Joe Biden warned the Saudis there would be unspecified “consequences” for partnering with Russia on cuts as Moscow wages war on Ukraine.
Bob McNally, the founder and president of the Washington-based Rapidan Energy Group and a former White House energy adviser, said Saudi Arabia and Russia had “demonstrated their unity and resolve to proactively manage” the risk of oil prices potentially dropping in tougher economic conditions with their announcement Tuesday.
“Barring a sharp economic downturn, these supply cuts will drive deep deficits into global oil balances and should propel crude oil prices well above $90 per barrel,” McNally said.