By Sibel Morrow

ANKARA (AA) - Saudi Arabia's decision to reduce oil production by 1 million barrels per day (bpd) in July, with the possibility of an extension, could temporarily apply upward price pressure, but the bearish global economic outlook from recessionary fears and geopolitical tensions will keep prices below $90 per barrel, experts concur.

On Sunday, the Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, agreed to not only maintain this year's output limits but further extend them until December 2024.

The group's swing producer, Saudi Arabia, surprised markets with an additional voluntary production cut of around 1 million bpd in July. The country said its one-month output reduction could also be extended, bringing its production to 9 million bpd.

The OPEC+ group's announcement came following its decision in April to implement a collective output cut of around 1.6 million bpd on top of its cut of around 2 million bpd in October of last year.

Despite the unexpected voluntary reduction by numerous countries led by Saudi Arabia and Russia in April, the price of Brent continued to fall by about 10% up to the group's meeting on June 4. Brent crude peaked at $87.49 per barrel on April 12 before falling to $71.28 per barrel on May 4.

Randall Mohammed, the former vice president of energy for Ahart Solutions International and an energy market commentator, blamed prevailing uncertainties and market volatility caused by weakened supply chains from the pandemic, higher energy prices, more expensive food prices, and higher retail prices and interest rates for the lower demand.

"Add to this a war in modern-day Europe and ongoing sanctions on two major producers, Iran and Venezuela. Certainly, this has weakened demand across many sectors," Mohammed told Anadolu.

Guarav Sharma, an independent energy market analyst, said Saudi Arabia’s move will only have a near-term impact on oil prices.

"Any oil price will be limited because the global economic climate remains tough," he told Anadolu.

The fresh OPEC+ production scheme was launched against a bleak economic backdrop, including slower-than-expected oil demand in top importer China, global recession fears, and persistent inflation in the US despite aggressive interest rate hikes for more than a year.

"Ultimately, and once again, the market will notice that everything depends on Saudi action. If all their cuts add up, Saudi production could fall to 9 million bpd in July. They have a capacity for 12 million bpd and should they lose patience, it will be a very different and bearish market," warned Sharma, who was also the former vice president and lead analyst at Citi Private Bank.

Sharma said, with the exception of initial reactionary price upticks after the meeting, a return to prices around $90 a barrel in the near term "is highly unlikely."

-'OPEC's optimism for higher prices means further inflationary burden on West'

OPEC+ countries and Western countries have been at odds since the latter, led by the US, has continuously demanded higher production in order to cut oil prices and combat growing inflation.

However, the OPEC+ group chose to stick to its own narrative by keeping production lower "to ensure a stable and balanced oil market."

In a retaliatory move, US President Joe Biden ordered the release of crude oil from the country’s Strategic Petroleum Reserve (SPR), the latest of which was in February. The plan requires the sale of 26 million barrels from April 1 to June 30.

"Restricting supply in a period of lower demand would no doubt push prices upwards. No doubt, OPEC would like to enjoy higher prices for an extended period of time. I'm certain the talk of budget surpluses is being echoed in the halls of government offices," Mohammed said.

He added that it is uncertain if US producers will respond to higher oil prices, taking into account that "production had fallen by 2 million bpd and has not really recovered due to the industry's focus on cost discipline and returning capital to shareholders."

"Whether the Biden administration would call the Saudis to the negotiation table is left to be seen," he added.