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newspaper reported.”NewsweekSaudi Arabia is preparing to increase oil production in a “push” to Russian President Vladimir Putin and to finance the Russian war machine against Ukraine.
The magazine explained that the Kingdom is preparing to abandon its crude oil price target of $100 per barrel as it moves to ramp up production, indicating recognition of lower prices, according to the Financial Times.
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According to the magazine, the decision comes despite previous production cuts by OPEC+ members, which sought to keep prices higher. Brent crude fell below $70 earlier this September, the lowest level since December 2021.
However, officials plan to increase production from December 1, which could extend the period of low prices, he noted. This represents a shift from Saudi Arabia’s previous focus on price stability.
The magazine believes that an increase in the Kingdom’s oil production, especially if combined with lower prices, could harm Russia’s economy, as Russia relies heavily on oil revenues to finance its economy and military operations in Ukraine.
Experts told Newsweek that Saudi Arabia’s move would “strain” Russia’s budget as it continues its offensive in Ukraine.
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“Oil and gas is one of the main sources of income for Russia’s budget,” Orysia Lutsevich, head of Chatham House’s Ukraine Forum, told Newsweek.
He added: “So far, despite the oil price cap imposed by the European Union, Russia has been able to increase those sources of revenue, which are essential to finance its war in Ukraine, with a significant, if significant, drop in oil prices. Additional pressure on the Russian budget will add.”
“Sanctions make access to parts more expensive for Russia, so limiting oil revenues will put pressure on the regime,” he added.
If Saudi Arabia increases supply, the magazine said, global oil prices would then fall, putting pressure on Russia, especially in light of sanctions and the ongoing conflict in Ukraine.
He explained that Russia’s economic stability could be weakened by a decline in oil revenues, which finance key government sectors, including the military effort. Increased competition in the oil market could erode Russia’s market share, challenging its fiscal flexibility.
According to the magazine, Saudi Arabia is facing increasing pressure on its oil market strategy from increased supply from non-OPEC producers such as the United States and weak demand in China.
Prices have fallen about 6 percent so far this year, according to Reuters, amid weak demand growth in China and increased supply from other producers, particularly the United States.
The OPEC+ alliance earlier this month agreed to suspend a planned increase in oil production in October for two months after crude oil prices hit a nine-month low and said it could temporarily stop or scale back if necessary.
The Financial Times reported that the alliance is committed to increasing production by the December 1 deadline, even if it results in prolonged low oil prices.
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Brent crude was down about 2.6 percent at $71.57 at 0745 GMT after the newspaper report.
Saudi Arabia’s official communications center has yet to respond to a request for comment.
The newspaper reported that Saudi Arabia considers it is not ready to give up its market share to other oil producers and believes it has financing options that include foreign exchange reserves and enough debt to withstand a fall in crude prices for a time.
The Kingdom, the world’s largest oil exporter, bears the brunt of the OPEC+ production cuts, cutting output by about two million barrels per day from the end of 2022.
OPEC+ members are currently cutting production by a total of 5.86 million barrels per day, equivalent to about 5.7 percent of global oil demand.
But Saudi Arabia has already increased production to maintain its market share.
Saudi Arabia and Russia engaged in a price war in 2020 and oil flooded global markets after Moscow refused to back OPEC’s decision to cut production further in response to the Covid-19 pandemic.
In 2014, Riyadh blocked calls from some OPEC members to cut production to stem the fall in oil prices, paving the way for a battle for market share between OPEC and non-OPEC producing countries amid rising American shale oil production.
OPEC and Saudi Arabia have repeatedly said they do not target a fixed price for oil and make decisions based on market fundamentals and to achieve a balance between supply and demand.