Here are three reasons why Saudi Arabia won’t cut oil production anytime soon

• Saudi Arabia will not cut oil production anytime soon even though prices have fallen 9% in the last week.
• The Financial Times reported, citing 5 confidential sources, that Riyadh is not seeking to cut production.
• Saudi Arabia is concerned that if it cuts production, other countries will not cut it, which could undermine the OPEC + deal.
• Visit the Business Insider home page for more stories.

Oil prices have fallen 9% in the last week, but Saudi Arabia, the world’s largest oil exporter, is unlikely to cut production anytime soon.

The Financial Times reported Thursday, citing five confidential sources, that while the fall in Brent crude futures below $ 40 this week has caused nervousness in Saudi Arabia, the kingdom will keep its production levels intact.

Brent prices have not been below $ 40 since the beginning of June.

At 5:36 a.m., Brent was trading 1% lower at $ 40.22.

Read more: Fred Stanske uses the insights of Nobel laureate Richard Thaler, the ‘father of behavioral finance’, to beat the market with stocks that go unnoticed. Here’s how you do it, and two picks you’re buying for long-term profit.

Earlier this week, Saudi Arabia cut prices for its crude sales to Asia to offset lower demand among some of the world’s biggest consumers, such as China.

Saudi Arabia also cut production by an additional 1 million barrels a day in June to prop up prices. According to OPEC’s latest monthly report, Saudi Arabia produced around 8.4 million barrels per day in July.

But sources told the FT that Riyadh is reluctant to cut production further, especially given its position as the effective leader of the so-called “OPEC +” export group, which includes the 13 members of the Organization of the Petroleum Exporting Countries, as well as other big producers like Russia, Oman and Kazakhstan.

Here are three reasons why Saudi Arabia is unlikely to cut production:

Not giving market share to rival countries

Saudi Arabia is reportedly concerned if it cuts production, cedes market share to rival exporters, and undermines the OPEC + deal to cut production by 7.7 million barrels per day through December, a previously agreed record of 9, 7 million barrels per day.

Brent prices took a beating in April as coronavirus lockdowns torpedoed demand for fuel. While Brent prices fell roughly from a closing price as high as $ 59.31 in early March to just over $ 19 in April, US crude prices briefly fell to – $ 40 a barrel.

No “free lunches” for quota hunters

OPEC and its partners agreed to cut production by 9.7 million barrels in May and June, but several members were slow to adhere to the deal, including Iraq and Nigeria.

The group reached an agreement in July to extend production through August, followed by a pledge by the bloc’s second largest member, Iraq, to ​​meet its agreed targets, cutting 400,000 barrels a day in August and September.

Read more: A strategist for the world’s largest wealth manager lays out 4 election-related risks that could hurt investors’ portfolios and shares how to protect yourself against each now, regardless of who wins.

But Helima Croft, head of commodities strategy at RBC Capital Markets, said in an interview with Business Insider in July that the “traps” of smaller lagging nations would still be in play.

More worrying for Riyadh, the United Arab Emirates, which has traditionally been a staunch ally, said last week it had produced in excess of its agreed quota. After having adhered to OPEC production agreements for nearly four years, this poses a problem for Saudi Arabia, which has publicly pressured countries like Iraq and Nigeria to break quotas.

Preserving OPEC’s own dynamics

Saudi Arabia is unwilling to undermine the OPEC deal as it remains in everyone’s interest that the deal remain in force.

Anas Alhajji, who advises oil-producing governments, told the FT that any further cuts from Saudi Arabia “would complicate the dynamics of OPEC.” “How can you convince countries that are already struggling to make additional cuts to make others even deeper? It is in everyone’s interest that OPEC + stay the course,” she added.

“Despite the recent drop in oil prices, we believe that the OPEC + leadership will continue to direct their efforts towards ensuring better compliance rather than pushing for deeper cuts at this stage,” said RBC’s Croft.