The United States has affirmed its commitment to maintaining a steady and cost-effective energy supply for the global market through continuous high-level communication with Saudi Arabia.
National Security Advisor Jake Sullivan made this announcement in response to concerns raised by the International Energy Agency (IEA) regarding a potential market deficit due to extended oil output cuts by Saudi Arabia and Russia, which are projected to persist until the end of 2023.
Sullivan addressed the matter during a White House briefing on Friday, where he disclosed that President Joe Biden engaged in a brief conversation with Saudi Crown Prince Mohammed bin Salman at the Group of 20 (G20) summit held in New Delhi earlier this month. The primary focus of their discussion revolved around the unveiling of a new economic corridor that aims to connect India, the Middle East, and Europe via rail and sea routes.
The backdrop to these discussions is a looming “significant supply shortfall” in the oil market. OPEC and its allied producers, collectively known as OPEC+, initiated production cuts in 2022 to stabilize the energy market. Saudi Arabia, a key player within OPEC, plays a pivotal role by contributing approximately 40 percent of the world’s crude oil output, giving its policy decisions substantial influence over oil prices.
In the current scenario, benchmark Brent crude prices have surged above $90 per barrel for the first time this year, driven by the collective decision of Saudi Arabia and Russia within the OPEC+ framework to extend their combined daily oil output cuts of 1.3 million barrels until the close of 2023.
Despite these production curbs, the International Energy Agency noted that increased supplies from non-OPEC+ producers such as the United States, Brazil, and Iran (which is still under sanctions) have mitigated the impact thus far. However, the IEA’s monthly oil report suggests that starting from September, the loss of OPEC+ production will result in a substantial supply deficit during the fourth quarter of this year.
It’s worth noting that the situation could evolve, as the IEA warns that without further cuts in the early part of the next year, the oil market could transition from deficit to surplus. This shift would be accompanied by uncomfortably low inventory levels, potentially increasing the risk of heightened volatility in an already fragile economic environment.