Saudi Arabia’s decision to cut oil production probably reflects expectations for demand to weaken further as coronavirus lockdowns return around the world, according to Goldman Sachs Group Inc.
The kingdom’s pledge to lower output by 1 million barrels a day in February and March was surprising for several reasons, Goldman analysts including Damien Courvalin and Jeff Currie said in a note dated Jan. 5. These include global demand beating expectations in December, the risk of encouraging the return of more U.S. shale production and Saudi Arabia undermining its own efforts to have every OPEC+ member implement similar cuts, they said.
See also: Saudis Take Charge of Oil Market With Surprise Production Cut
The most likely reason is the kingdom expects a big slowdown in global energy consumption including in Asia where infections are rising quickly, the analysts said. The transition to a probably less friendly U.S. administration may also have led the Saudis to adopt a more supportive stance toward other Middle East producers, they said. Goldman revised its demand forecasts for January and February to 92.5 million barrels a day from 93.5 million in December.
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