Oil prices surged as Saudi Arabia and Russia made an announcement regarding an oil supply cut for August, overshadowing concerns about a global economic slowdown and potential increases in US interest rates.
In an effort to maintain market stability, Saudi Arabia stated that it would extend its voluntary reduction of one million barrels per day (bpd) for an additional month, encompassing August. Likewise, Russia revealed its plans to decrease oil exports by 500,000 bpd in August, contributing to a further tightening of global supplies.
As a result of these developments, Brent crude futures climbed by $1.04 to reach $76.45 per barrel, as of 0942 GMT (1.42 pm UAE time), following a 0.8% increase on Friday. Meanwhile, US West Texas Intermediate crude rose by 97 cents to $71.61, building upon a 1.1% gain from the previous session.
“Investors are turning upbeat as the second half of the year kicks off; they expect tighter oil balance and buoyant equities also suggest that recession will be avoided, albeit probably narrowly,” said PVM analyst Tamas Varga.
Saudi Arabia’s decision to implement oil supply cut will bring its daily output to around 9 million barrels, marking the lowest level in several years. Despite reducing sales volumes, the move has yielded little reward in terms of higher prices.
The lacklustre demand in China has placed a cap on crude prices, with the current price hovering around $75 per barrel, which is below the level necessary for Saudi Arabia to cover its budget.
Given this situation, the extension of oil supply cuts did not come as a surprise, as nearly all traders and analysts surveyed by Bloomberg had predicted this outcome.
Expectations were initially high for oil prices to rally this year, but they have instead remained sluggish due to concerns about the strength of the economy as interest rates continue to rise.
Despite the expected tightening of supply in the second half of the year, major financial institutions like Goldman Sachs Group Inc. and Morgan Stanley have abandoned their predictions of crude oil reaching $100 per barrel.
