Saudi Arabia: OPEC lowers price and production of its oil in May
The OPEC oil basket traded at USD 76.0 per barrel on average in May, down 10.0% from the prior month. Meanwhile, on 1 June, the latest date with data available, the price was 7.1% lower on a year-to-date basis and 33.4% lower than on the same day last year.
Crude prices fell in May on a stronger dollar and concerns about the health of the global economy amid disappointing economic data in China and rising fears of a default in the U.S.
According to a survey by Reuters, the combined crude oil output of OPEC members fell by 0.46 million barrels per day (mbpd) from April to 28.01 mbpd in May. This mostly reflected lower output in Kuwait, Saudi Arabia and the UAE after they agreed in April to voluntarily cut output. Overall, quota-bound OPEC members pumped 0.85 mbpd less oil than targeted.
Focusing on Saudi Arabia, output fell by 0.43 mbpd in May, bringing total crude production to 10.00 mbpd, slightly above the maximum allowed under Saudi Arabia’s quota. Lower crude output is likely to knock real GDP growth in Saudi Arabia this year. That said, in April, the IMF said that Saudi Arabia cutting output would raise government revenue. Since the demand for oil does not change sharply when its price changes—it has a low price elasticity of demand—the positive effect of Saudi Arabia reducing output on revenue via higher prices may outweigh the negative effect of Saudi Arabia reducing output on revenue via lower production.