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HomeFinance NewsSaudi Arabia's Oil Bet Pays Off: Brent Reaches $95

Saudi Arabia’s Oil Bet Pays Off: Brent Reaches $95

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Saudi Arabia and Russia’s decision to extend their oil production cuts has proved successful as supply remains tight and demand continues to drive prices higher. Both countries needed higher oil prices, and this risk paid off as the cuts pushed prices higher. The International Energy Agency’s recent updates on oil demand also support the decision, stating that oil demand must drop by about a third by 2030. However, oil producers, including Saudi Arabia, have expressed concerns that these messages will discourage investment and jeopardize supply security.

Despite the potential for demand destruction at high prices, the actual demand for oil remains strong. While some predict that prices above $100 per barrel and gasoline prices rising to $4.00 to $4.25 per gallon would lead to substantial demand destruction, this may not be universally true. In India, for example, demand for oil has continued to rise despite increasing prices. The festive season and continued economic growth are expected to further drive demand in India.

Overall, Saudi Arabia and Russia’s calculated risk in extending their production cuts has been successful due to the continued resilience of oil demand and the limited threat of other producers filling the supply gap. The key question going forward is at what point high prices will begin to erode demand.

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