Saudi Arabia’s $3 billion insurance premium to protect against falling oil prices will end up being a lot smaller than it seems at first sight. That holds even if demand turns out to be stronger than the kingdom seems to fear.
This week’s OPEC+ meeting of oil producers broke up in disarray on Monday night, with Russia pressing for output targets to be raised by 500,000 barrels a day in February. Most other members wanted to leave them unchanged as the coronavirus continues to roil global economies and the recovery in demand remains fragile.
Saudi Arabia appeared particularly worried. In his opening remarks, the country’s oil minister warned repeatedly against squandering gains made by the group’s hard-won sacrifices last year for “an immediate, but illusory, benefit.” He went so far as to suggest it was even necessary to reverse the output increase that had just come into effect.
And yet, in the end, the collective responsibility previously demanded by the Saudis was jettisoned and everyone got what they were asking for. The output targets for most countries will remain unchanged in February and March. Russia and Kazakhstan can proceed with the increases they wanted, albeit spread over two months. And Saudi Arabia will make its cut — and then some.
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