OPEC agreement Saudi Arabia’s oil strategy
October 4 |Yemeni press.
The concessions offered by Saudi Arabia in its bid to lock down a deal to limit the globe’s oil supply show the world’s largest crude exporter is getting pinched by its own policy, Again Capital founding partner John Kilduff said Wednesday.
Sources told Reuters that OPEC hammered out a deal on Wednesday to reduce the cartel’s production to 32.5 million barrels per day from around 33.24 million, with output levels for each member to be determined in November.
The Saudis decided in November 2014 to allow an oversupplied oil market to balance on its own, rather than coordinating an oil output cut among OPEC members. The policy was designed to reduce supply by washing out high-cost producers — such as U.S. shale drillers — but the strategy has also piled pressure on Riyadh.
Saudi Arabia’s foreign exchange reserves have fallen 20 percent over the last two years, to $587 billion through March, the last month for which IMF data were available. On Monday, the kingdom said it would cut ministers’ pay by 20 percent and pare perks for public sector employees, who make up two-thirds of the country’s workforce, Reuters reported.
The move to squeeze public employees came ahead of an informal gathering of OPEC members and other producers at a previously scheduled meeting in Algeria to discuss a plan to stabilize oil prices, which remain nearly 60 percent below their 2014 peak.
“The big takeaway is how into a corner the Saudis have backed themselves. This whole plan has backfired on them. They’re going to be bearing most of the cutback if they pull it off, and they’ve had to really kowtow to the Iranians in this whole thing,” Kilduff told CNBC’s “Power Lunch.”