Saudi Arabia on Sunday announced that it would slash its oil supplies to the global economy in a bid to prop up prices.
The announcement came after hours-long negotiations at an OPEC+ meeting — the grouping of the 13-member Organization of the Petroleum Exporting Countries (OPEC), headed by Saudi Arabia, and the group's 10 partners, led by Russia.
The meeting was closely watched as a tough one, with Russia seen as wanting to maintain production levels, and Saudi Arabia seeking to push prices.
OPEC+ producers agreed in the meeting in Vienna to extend earlier production cuts through next year, while the Saudi decision to slash 1 million barrels per day (bpd) was a unilateral step.
What did Saudi Arabia say?
Saudi Arabia's output will drop to 9 million bpd in July from around 10 million bpd in May.
The country's Energy Minister Prince Abdulaziz bin Salman told reporters that Riyadh's latest cut is "extendable."
OPEC+ producers "will do whatever is necessary to bring stability to this market," he added.
"This is a Saudi lollipop," the prince said. "We wanted to ice the cake. We always want to add suspense. We don't want people to try to predict what we do... This market needs stabilization."
Why is Saudi Arabia cutting oil output?
Oil producers have suffered from falling prices and high market volatility in light of Russia's war in Ukraine.
In April, several OPEC+ countries agreed to cut production voluntarily by more than one million bpd. Prices initially jumped after the announcement, but later plunged amid concerns about the weakness of the global economy.
Analysts see that the latest cut is likely to hike oil prices in the short term, while the long-term impact will depend on whether the cuts are further extended.
Jorge Leon, senior vice president of oil markets research at Rystad Energy, told the Associated Press (AP) news agency that Riyadh's decision provides "a price floor because the Saudis can play with the voluntary cut as much as they like."
The oil-rich country needs revenue to balance its budget and fund ambitious state projects. According to estimates by the International Monetary Fund, Saudi Arabia needs $80.90 per barrel to meet its envisioned spending commitments, which include a planned $500 billion futuristic desert city project.
How is Russia affected?
The Saudi decision and increases to oil prices could profit Russia, since Moscow has found new oil customers in India, China and Turkey amid Western sanctions.
Russian Deputy Prime Minister Alexander Novak said Moscow would extend its voluntary cut of 500,000 barrels a day until the end of 2024 under the OPEC+ deal, according to Russian state news agency Tass.
But Moscow's total exports of oil and refined products, such as diesel fuel, rose in April to 8.3 million bpd, according to the International Energy Agency, in a post-invasion record high.