Oil Output Slashed by Saudi Arabia! Why?

Oil production cut

A slash in Saudi Arabia’s oil production sends ripples across the world. Will India, too, feel the pinch in its pockets?

For a very long time, Saudi Arabia has been observed to stay within its rulebook. It has followed an unsaid principle of taking action together with other influential members of OPEC+. Acting alone was a rare occurrence. 

But it seems that Saudi Arabia has thrown away its rulebook and has deviated from its usual practice. It has surprised many by declaring a production cut of one million barrels a day from July 2023. Moreover, the energy minister of Saudi Arabia claimed that the one million barrels is also extendable. 

But the question is, why is Saudi Arabia cutting additional production? And how will it pinch India’s pockets?

Let’s find out. 

What’s Happening?

Oil is an essential commodity for the world, especially for non-oil-producing countries like India. Any change in price puts dents in the country’s pockets. 

In April 2023, OPEC+ sat down for an agreement and announced that the cartel would limit the overall oil supply until 2024. This decision was taken because the oil price was falling, and the group wanted to stabilise it by reducing the amount of oil available in the market. By cutting production, they hoped to increase demand and prevent further decline in oil prices. And it did work back then. The oil prices recovered and jumped back to $87 per barrel in April 2023. 

But then, after a few fluctuations, the price started sliding again. On 31st May 2023, Brent Crude prices dipped to $72 per barrel, and that’s when Saudi Arabia, the largest oil producer in the OPEC+ cartel, announced that they would cut down oil production by one million barrels a day. 

Reasons Behind Saudi Arabia Production Cut

  • Firstly, China’s economic recovery is slowing down, which is worrying because it’s the world’s second-largest oil consumer. 
  • According to Moneycontrol, Russian Deputy Prime Minister Alexander Novak mentioned that there are concerns about market interference affecting Russian oil prices.
  • Investors are selling risky assets like commodities, causing oil prices to drop from $139 to around $70 per barrel. 
  • There are fears of a global recession which could push oil prices lower. 

Due to such factors, Saudi Arabia has cut its oil production. This step is aimed at balancing the supply and demand of oil to stabilise prices in the market.

Will it Pinch India’s Pockets?

Firstly, from a global perspective, the West has already criticised OPEC+ for manipulating prices and siding with Russia despite the war in Ukraine.

Furthermore, as mentioned before, an increase in oil prices has significant implications for non-oil-producing countries. It would lead to higher living costs and pose more significant challenges in combating inflation.

Regarding India, we are not that dependent on Saudi Arabia for oil. According to The Hindu, 42% of our oil needs were imported from Russia as of May 2023. And because Russia has not announced any additional cuts, the impact on India will be limited. 

But it’s not all good news. While India relies heavily on Russia for the majority of its daily oil supply of 4.7 million barrels daily, a significant portion of 1.8 million barrels is sourced from OPEC as of May 2023. So, India, too, is at OPEC’s mercy, just as other non-oil-producing countries are. Any change in oil prices may pinch India’s pockets too.

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!

*The article is for information purposes only. This is not an investment advice.

*Disclaimer: https://tejimandi.com/disclaimer

Teji Mandi Multiplier Portfolio of high quality companies that blends shorter term tactical bets with long term winners Subscription Fee
Min. Investment
Teji Mandi Multiplier Portfolio

Teji Mandi Multiplier

Concentrated portfolio of fundamentally strong small & midcap stocks that are likely to show potential growth.


Min. Investment

Subscription Fee

Teji Mandi Flagship A basket of 15-20 long-term and tactical stocks that we regularly rebalance to adjust to the market conditions. Subscription Fee
Min. Investment
Teji mandi Flagship portfolio

Teji Mandi Flagship

A Multi-Cap portfolio of 15-20 stocks that consists of tactical bets and long-term winners that generate index-beating returns.


Min. Investment

Subscription Fee

Recommended Articles

"Register Your Interest"

Already a member ? Log In