Saudi Arabia cuts oil prices: Russia should get ready
5 June 2025 09:51
Oil prices fell in early trade on Thursday after official data showed an increase in gasoline and diesel stocks in the United States and Saudi Arabia announced a reduction in crude oil prices for Asian buyers for July. This was reported by "Komersant Ukrainian" with reference to Reuters.
Price dynamics on world markets
According to OilPrice.com, as of 06:55 Kyiv time, Brent crude oil futures fell by 9 cents, or 0.14%, to $64.77 per barrel. U.S. West Texas Intermediate (WTI) lost 19 cents, or 0.3%, to $62.66 per barrel.
On Wednesday, oil prices closed about 1% lower after the release of official data showing that US gasoline and distillate stocks rose more than expected. This indicates weakening demand in the world’s largest economy.
Saudi Arabia’s decision increases pressure on the market
Additional pressure on the market was created by the decision of Saudi Arabia, the world’s largest oil exporter, to reduce July crude oil prices for Asian buyers to a two-month low.
This price cut by Saudi Arabia, which is a key oil producer within the OPEC grouping, comes after the organization’s decision over the weekend to increase production by 411,000 barrels per day in July.
According to Reuters, the strategy of OPEC leaders is partly aimed at punishing countries that exceed production quotas and regaining market share.
Global economic challenges
In parallel with oil problems, Canada is preparing measures to respond to US tariffs. Meanwhile, the European Union reports progress in trade negotiations amid new US tariffs on metals.
“Uncertainty, fueled by President Trump’s shifting stance on tariffs, has heightened fears of a global economic slowdown,”
– Ole Hansen, an analyst at Saxo Bank, said in a research note.
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Is Saudi Arabia disrupting the market?
Saudi Arabia has decided to change its energy strategy. It is now ready to accept a prolonged period of low oil prices instead of further production cuts. The kingdom no longer seeks to maintain high prices by reducing supply, as it has done for the past five years as leader of the OPEC group.
This change in strategy could mean a shift to increasing production and expanding Saudi Arabia’s market share. This is in stark contrast to the previous policy of balancing the market through deep cuts, which kept prices at the level necessary to ensure export revenues for many oil-producing countries.
A blow to the Russian economy
For Russia, which is the second largest exporter in the OPEC group after Saudi Arabia, this development could have catastrophic consequences. Although the Russian side is aware of Riyadh’s plans to accelerate production growth, Moscow prefers a slower increase, as its budget is balanced at a price of about $70 per barrel.
A drop in oil prices could lead to a significant reduction in Russian budget revenues, especially given that prices for Russian oil, which is already sold at a discount due to sanctions, could fall below $50 per barrel. Such prices not only put pressure on the Russian budget, but also reduce the Kremlin’s ability to finance military operations and maintain social stability.
Russia is already hurting
It is well known that Russia is critically dependent on its energy exports. First of all, on oil exports. In 2024, the federal budget revenues from oil sales amounted to 9.19 trillion rubles (approximately $89.4 billion). Total budget revenues for this period amounted to 36.71 trillion rubles. Thus, the share of oil revenues in the total structure of Russian budget revenues in 2024 was approximately 25%
This indicates that, despite international sanctions and attempts to diversify revenue sources, oil remains a key source of financing for the Russian budget.
Russian Urals oil is traditionally sold at a lower price than Brent and WTI, and it is also subject to additional factors that raw materials from other countries do not experience, namely Western sanctions. However, during all three years of the full-scale war with Ukraine, Russia has been successfully selling its oil – its main buyers today are China and India.
The federal budget of the Russian Federation for 2025 included an oil price of $70. Meanwhile, due to the collapse in the global oil market caused by Donald Trump ‘s trade war and OPEC’s decision to further increase production, the price of Russian Urals oil, according to the Ministry of Finance, was $60.60 per barrel on June 3.
So far, market analysts’ forecasts do not promise Russia any serious problems related to the price of oil, as it still has a very large backlash for sales. According to economic expert Oleg Pendzin, even a price of $50 per barrel is still acceptable for Russia.
“Currently, the direct cost of Russian oil production is about $37-38 per barrel. This is the direct cost. The critical figure for Russia is the sales price of $45,”
– the economist explained exclusively for .
Therefore, the most likely way to hurt Russia over oil is still to increase sanctions, including secondary sanctions against its buyers. The point of this step is to make it physically impossible for Russia to sell large volumes of oil and thus receive funds to continue its aggressive war of aggression.
Back during his election campaign, after making statements about ending the war in 24 hours or 100 days, US President Donald Trump made a very realistic statement. He said that in order for Russia to lose the ability to fight, it would be enough to simply collapse oil prices. And he seems to be going to do that if Russia does not make concessions.
The Russian economy is already slowing down significantly at current oil prices, industry is stagnating, and recession looks like a very real prospect.
If the current downward trend in prices continues, the figure of $45 per barrel does not look so fantastic.
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