Oil prices plunge, erasing gains from Saudi-led output cut, as demand fears mount.

How does the drop in oil prices affect oil-producing countries that rely on higher prices to balance their budgets?

Oil prices have plunged, erasing gains from a Saudi-led output cut, as fears of a global economic slowdown mount.

The price of Brent crude, the international benchmark, fell by more than 4% on Monday, to $60.45 a barrel, its lowest level since January. The drop came despite a decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, to cut production by 1.2 million barrels a day.

The production cut was intended to prop up prices, which had been falling due to a combination of weak demand and rising supply. But the move has been overshadowed by fears of a global economic slowdown, as the US-China trade war continues to drag on and the US Federal Reserve signals a possible interest rate cut.

The drop in oil prices is likely to be welcomed by consumers, who have seen prices at the pump rise in recent months. But it could spell trouble for oil-producing countries, which rely on higher prices to balance their budgets.

The drop in oil prices is also likely to be felt in the stock market, as energy companies are among the biggest losers in the current market downturn.

It remains to be seen whether OPEC and its allies will take further action to prop up prices. But for now, it appears that the market is more concerned about the global economic outlook than the production cuts.
Oil prices have taken a hit after Saudi Arabia’s surprise weekend pledge for extra supply cuts. West Texas Intermediate dipped below $71 a barrel on Tuesday, down by about $1 from Friday’s close. The drop comes after Monday’s short-lived surge following the tense OPEC+ meeting and Saudi announcement. The kingdom also raised its crude prices for July. Despite the OPEC+ producer saying earlier this year it would reduce supply, oil tumbled 11% last month due to resilient Russian output and concerns over the demand outlook, especially from China. rnrnSaudi Arabia followed its move to cut output in July with an increase to its crude prices for the same month, pushing some Asian refiners to consider buying more crude from other suppliers including Russia. WTI oil prices have also fallen further down the futures curve, with prices for December 2023 and 2024 lower than Friday’s close. Citigroup Inc. analysts noted that their view is now “even more bearish demand for 2H ’23 than it was at the start of the year. This is particularly true for China, and not only in oil but across commodities.” rnrnDespite Saudi Arabia’s efforts to stabilize the market, oil prices have not seen the expected boost. Ole Hansen, head of commodity strategy at Saxo Bank A/S, noted that the 10% production cut would need an $8 higher price to keep revenues stable. However, the higher fuel burn inside the kingdom during the next couple of months will lead to lower exports.