The Lombard Review
Economy

Saudi Arabia keeps oil above $90

Voluntary supply cuts sustain headline

An oil refinery near Port Dickson, Malaysia
An oil refinery near Port Dickson, MalaysiaPhoto: AyyanD / Wikimedia Commons, CC BY-SA 4.0
1 min read Data: 1m bpd cut extended to Dec

Riyadh has re-established itself as the undisputed price-maker of the global energy market. By extending its unilateral one-million-barrel-per-day production cut through the end of the year, Saudi Arabia has engineered a synthetic supply deficit that has driven Brent crude back above $90 a barrel. The move is a masterclass in cartel discipline, delivered with complete indifference to Washington's inflation concerns.

The Federal Reserve Bank of New York at 33 Liberty Street
The Federal Reserve Bank of New York at 33 Liberty StreetPhoto: Beyond My Ken / Wikimedia Commons, CC BY-SA 4.0

Engineering the Backwardation

By actively starving physical crude markets, Saudi Aramco has driven the futures curve into deep backwardation, penalising commercial inventory holders and forcing global refiners to draw down commercial stockpiles. With US Strategic Petroleum Reserves already depleted, the Biden administration has no immediate policy lever to counter the output restraint. Higher crude prices will feed directly into transportation costs, re-igniting headline consumer price prints.

The north façade of the White House
The north façade of the White HousePhoto: Nishkid64 / Wikimedia Commons, Public domain

Riyadh’s unyielding output discipline proves that while central banks can manipulate overnight interest rates, physical commodity cartels still dictate the ultimate clearing price of the global economy.