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Saudi Arabia Commodities April 2023

Saudi Arabia: Oil prices rise in April following OPEC+’s quota cut

The OPEC oil basket traded at USD 84.2 per barrel on average in April, up 7.3% from the prior month. Meanwhile, on 4 May, the latest date with data available, the price was 3.2% higher on a year-to-date basis and 20.4% lower than on the same day last year.

Crude prices rose in April, largely after OPEC said early in the month that it would cut production quotas from May onwards. However, although crude prices rose on average in April, they eased later in the month as investors became squeamish about the health of the Chinese and U.S. economies. Data showing that Russian oil exports remain resilient further added to bearish sentiment among investors.

According to a survey by Reuters, the combined crude oil output of OPEC members fell by 0.19 million barrels per day (mbpd) from March to 28.60 mbpd in April. This mostly reflected lower output in Iraq and Nigeria. Overall, quota-bound OPEC members pumped 1.20 mbpd less oil than targeted.

Focusing on Saudi Arabia, according to the survey, output fell by 0.20 mbpd in April, meaning the country undershot its quota by 0.48 mbpd. The cut to quotas announced in April by OPEC will take effect from May, and will hit Saudi Arabia’s quota by 0.50 mbpd, knocking real GDP growth in the country this year. Nonetheless, in April, the IMF said that Saudi Arabia’s production cut would raise government revenue overall. Given that the demand for oil doesn’t tend to change significantly when its price changes—it has a low price elasticity of demand—the positive effect of OPEC reducing quotas on revenue via higher prices may indeed outweigh the negative effect of OPEC reducing quotas on revenue via lower output.

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