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Saudi Arabia may Cut Oil Supply if Global Economy Demands

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The world is experiencing a slowdown in growth. Owing to the slump in demand, Saudi Arabia Energy Minister Khalid Al Falih has recently said that OPEC and all its allies are ready to respond to the global economic slowdown quickly.

Al Falih told that though he did not see any big recession in the near future, they had everything needed in their hands to correct the situation.

Al Falih said if the world sees a slowdown, the oil market will also see a small slowdown that can be absorbed with adjustment in supply.

Oil prices became much higher when the OPEC members along with Russia in December decided to slash the production of oil. President Trump heavily criticized this step. The deal called for a cut of 1.2 million barrels a day from the world market.

Though the step revived the prices, few major economies like China and Germany objected to the step owing to their slow growth of the economy.

Al Falih said that the group along with its allies is ready to even cut more in supply if needed. He added that they were monitoring the market on a daily basis and if they would feel the need to reduce more than 1.2 million barrel a day, they would not hesitate to do that.

It should be reported here that, US crude oil futures have inflated in recent weeks to trade above $51 per barrel. Brent crude, the global benchmark, is roaming around $60. Saudi Arabia would welcome further price hikes by lowering supply.

According to the International Monetary Fund, the country is depending on oil revenue to fund an economic overhaul and support growth. The economy has contracted in 2017, but it is expected to grow by 2.2 percent in 2018 and by 2.4 percent in 2019.

Higher prices of oil will encourage the IPO (Initial Public Offering) of Saudi Arabia’s biggest state-owned oil company, Aramco. It is a part of the country’s plan to diversify the economy from oil to many things.

The IPO along with other reforms were initially planned to happen by 2018 but later stalled for multiple reasons. But, as per the recent news, the country is planning to bring the reforms on by the end of 2021.

The minister said that they were waiting for the right time so that every stakeholder starting from the Government to other shareholders would be benefited from this.

Saudi Arabia has for the first time recently allowed independent auditors to its vast energy reserves. It is a part of the plan by the country to diversify its economy out of oil.

US energy consultancy DeGolyer & MacNaughton concluded that the country has a reserve of 268.5 billion barrels just above the Government given data of 266.3 billion barrel reserve. The vagueness in the total reserve size and its value has led to the stalling of IPO of Aramco, due to skepticisms by the investors.

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