Saudi Arabia's relationship with the United States has been delicate in recent years. In mid-2022, the U.S. asked Saudi Arabia to increase oil production to combat global inflation, making the cost of economic recovery slightly lower. However, due to face-saving, Saudi Arabia originally planned to increase oil production by 500,000 barrels per day, but in the end, it only amounted to a perfunctory increase of 100,000 barrels per day.

Seeing that Saudi Arabia was not reliable, the U.S. began to release a large amount of its own strategic petroleum reserves. Thanks to the U.S. efforts, the international oil price was once controlled at $76 per barrel.

Saudi Arabia saw that the U.S. actions were damaging its own interests, so it decided not only not to increase oil production but also to reduce it. In October 2022, OPEC and non-OPEC oil-producing countries jointly decided to reduce oil production by 2 million barrels per day starting from November, with the deadline being the end of December 2023, in order to stabilize oil prices.

This is the largest oil reduction measure since the pandemic, equivalent to about 2% of the global oil demand. OPEC stated at the time that this decision was made due to uncertainties in the global economic and oil market outlook.

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However, November has already passed, and now the oil-producing countries' alliance led by Saudi Arabia, known as OPEC+, has decided to keep crude oil production unchanged. Additionally, considering that crude oil demand in the coming period may not be as strong as expected, Saudi Aramco, the national oil company of Saudi Arabia, has reduced the official selling price of all types of crude oil to Asia in February.

Among them, the flagship product, Arab Light crude oil, saw a price reduction of $1.45 per barrel, with the latest selling price hitting a new low since November 2021. Moreover, Saudi Aramco also lowered the crude oil selling price to Northwest Europe and the Mediterranean region, but it kept the crude oil selling price unchanged for U.S. customers.

Due to Saudi Arabia's reduction in oil prices, Brent crude oil futures have further declined by 7.5% this week, falling significantly from nearly $125 per barrel in June to less than $80.

Through this series of oil price tug-of-war, we can see that Saudi Arabia and the U.S. are no longer on the same page.

Of course, this is not the topic I want to discuss today. The topics I want to discuss today are: 1. Why does Saudi Arabia lower oil prices in Asia and Europe, but not reduce oil selling prices to the U.S.? 2. Why does Saudi Arabia go back on its initial commitment to reduce production, preferring to lower prices and harm its own interests? 3. What does this mean for the global economy in 2023? Will the economy be more difficult this year? Let's take a look at it step by step.

First, let's talk about why Saudi Arabia only lowers oil prices in Asia and Europe, but does not reduce oil selling prices to the U.S.?That's because, in Saudi Arabia's crude oil exports to Asia, about 60% are sold under long-term contracts, with pricing reviewed every month. China, Japan, South Korea, and India are its largest buyers. To put it bluntly, Asia is a major customer for Saudi Arabia, and of course, major customers should be treated with VIP pricing.

Additionally, in recent months, due to Western restrictions on importing discounted Russian oil, this has inadvertently led to India and China importing large quantities of discounted Russian oil. Russia has even become India's main oil importer, which has directly "squeezed" Saudi Arabia's market share in the Asia-Pacific region. Therefore, Saudi Arabia's decision to lower prices also takes this into consideration.

Reducing oil prices in Europe is also easy to understand; it's purely for the purpose of capturing the European market. Since Europe has restricted the import of Russian oil, would you want Saudi Arabia's low-priced oil or not? After all, I haven't offended you.

Not reducing the price of oil in the United States can only indicate that the American customer is no longer very important in the eyes of Saudi Arabia. This is because the United States has reduced its dependence on Middle Eastern oil in recent years. Let's look at a set of data to understand this.

The amount of oil imported from Saudi Arabia by the United States has dropped from an average of 417,000 barrels per day in June 2022 to 371,000 barrels per day in July of the same year, a sequential decrease of 11.03%. In recent months, the amount of crude oil Saudi Arabia exports to Egypt has already exceeded the amount exported to the United States.

To put it bluntly, the American customer is now no longer very important and dispensable, so take it or leave it with the price.

After discussing the first question, let's move on to the second question: Why did Saudi Arabia go back on its initial promise to cut production and instead choose to lower prices, even at the expense of its own interests?

The first reason is that initially, OPEC, led by Saudi Arabia, hoped to join with non-OPEC countries to reduce oil production to boost oil prices. This approach was in line with the overall interest. However, later on, due to non-OPEC countries' concerns about losing market share after reducing oil production, the two sides were at an impasse. As a result, Saudi Arabia chose to take drastic measures. Since you are not cooperating, I will take control of the entire market and directly choose to lower oil prices to capture market share.

The second reason is that the Kuwaiti Oil Minister recently stated that the current global economy is facing a slowdown in growth, high inflation, and high interest rates, which will impact oil demand. Therefore, major oil-producing countries need to be "continuously cautious."

To put it bluntly, it is the high inflation that has led to a contraction in global demand. If we were to choose to reduce oil production again, it would only lead to further demand contraction, which would not solve the ultimate problem. Only by lowering prices can we stimulate demand. It's better to make less money than not making any money at all!So, considering the growing concerns in the market about global oil demand, it is not surprising that Saudi Arabia has lowered its oil prices.

The third issue is that Saudi Arabia has reduced the oil prices for Asia and Europe. What does this mean for the global economy in 2023? Will the economy be more difficult this year? And will oil prices fall?

The reduction in oil prices by Saudi Arabia is sufficient to indicate a slowdown in global economic growth in 2023, with crude oil demand remaining sluggish. The Managing Director of the International Monetary Fund also stated that one-third of the world's regions and countries will fall into recession this year. This means that this year is still a cold winter! Life is not easy.

As for oil prices, experts predict that there may be a possibility of a decline in oil prices in July to August 2023, but the reduction is not very significant, and car owners should not hold too much hope. According to survey forecasts, the average price of Brent crude oil this year is $100.50 per barrel, and in 2023 it is $95.56 per barrel. Citigroup also gave the same expectation.

However, it is worth mentioning that the Saudi Foreign Minister recently stated that China and Saudi Arabia have reached a comprehensive strategic partnership, which means that Saudi Arabia will follow the principle of prioritizing China.

In addition, according to experts from the Russian Institute of Contemporary International Issues, Saudi Arabia has a great interest in increasing investment in China and consolidating its position, and intends to sell some oil in yuan as the settlement currency.

If Saudi Arabia chooses to settle oil in yuan, then other major oil-producing countries are very likely to follow Saudi Arabia's pace. This also means that the dollar hegemony established by the United States through the oil economy will be further squeezed by countries around the world!