OPEC officials say Saudi Arabia plans to cut its crude oil exports to about 7.1 million barrels a day by the end of January, hoping to raise oil prices to more than $80 a barrel.

The new strategy comes as Saudi Arabia seeks to cover a substantial increase in government spending. Last month, the company said it planned to increase spending by 7% in 2019, equivalent to $20 billion, as the country was trying to fund its ambitious plan to diversify its economy beyond oil products.

Mohammed bin Salman, Saudi real ruler and Crown Prince, has been facing a sharp drop in oil prices since October last year because of oversupply. Last October, journalist Jamal Khashoggi was brutally murdered by Saudi agents, which also prevented foreign companies from working in Saudi Arabia and investing in the country’s economic development plan.

According to an official from the Organization of the Petroleum Exporting Countries, Saudi Arabia’s new budget calls for oil prices to rise to $95 a barrel. But according to people familiar with the situation, Saudi Arabia will be satisfied with the oil price of $80 to $85 a barrel, which will limit the demand for Saudi Arabia to use its financial reserves.

To compensate for the proposed expenditure, the Saudi government will cut crude oil exports from November levels to up to 800,000 barrels a day.

Saudi Arabia exported about 7.3 million barrels of crude oil a day last month. That figure has fallen from about 7.9 million barrels a day in November and 7.7 million barrels a day in October.

An official from the Organization of Petroleum Exporting Countries (OPEC) said the U.S. market would see the biggest drop in Saudi oil exports. Overall, export cuts will exceed the six-month commitment made to OPEC in early December.

At last month’s OPEC meeting, Saudi Arabia agreed to cut oil production by 2.5% from October levels starting in January. Subsequently, it raised its target to 3%. But shipping is the most important component of its supply because of its impact on the global oil market.

Oil prices fell below $80 a barrel in October 2018 as Saudi Arabia put pressure on the United States to replace sanctioned Iranian oil and boost oil supply. This growth outcomes exceed market needs.

OPEC officials said the new measures were unlikely to raise oil prices to the level required by Saudi Arabia in the short term. But they say that when analysts expect oil demand to rise, oil prices of $80 a barrel may become possible in the second half of this year.

Brentcrude, the global benchmark, rose 1.2% to just under $59 a barrel on Monday, while West Texas Intermediate Oil (WTI) rose 3.5% to just under $50 a barrel, after the Wall Street Journal reported that Saudi Arabia planned to cut exports further.
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