Oil Rallies as Saudi Arabia, Russia Extend Supply Cuts
Oil prices saw limited gains despite the fact that Saudi Arabia and Russia, rolled over their existing supply cuts for another month, while unclear demand forecasts in China and the US continue to weigh on gains.
The Organisation of Petroleum Exporting Countries and Allies (OPEC+’s) largest oil producers, Saudi Arabia and Russia maintained the status quo, keeping market price decline in check by tightening production.
Russia will cut oil exports by 300,000 barrels per day (bpd) in September, “as part of efforts to ensure market stability”, Deputy Prime Minister Alexander Novak said.
This came just minutes after Saudi Arabia’s announcement to extend its existing production of 1 million bpd through September. Russia has already had a 500,000 bpd of supply cut ongoing in August.
The new cuts were additions to the OPEC+ group’s already-existing output cap of around 2 million bpd announced in October 2022 and 1.6 million bpd announced in May.
Market data showed that international benchmark Brent crude traded at $85.58 per barrel on Friday, increasing by around 1.38% relative to the closing price of $84.41 a barrel on Friday last week.
Similarly, the American benchmark West Texas Intermediate (WTI) saw gains while trading at $81.97 per barrel at the same time, posting a 1.72% rise from last Friday’s session that closed at $80.58 a barrel.
Both benchmarks started the week with multi-month highs, extending gains from the previous week as investors digested the US Federal Reserve’s latest decision to raise interest rates by 25 basis points.
Nonetheless, the price rally was constrained after rating agency Fitch cut the US credit rating, citing fiscal deterioration, but a big plummet in US commercial crude oil stockpiles mitigated demand concerns, as the robust stockpile draw signaled solid oil demand in the world’s top oil-consuming economy.
However, the disappointing economic growth rate of China, the world’s largest oil importer and second-largest oil consumer, acted as a headwind to future price increases.
In light of recent dovish indications from policymakers to boost GDP, investment bank Morgan Stanley downgraded its rating on Chinese stocks, warning that Chinese government support for economic stimulus may fall short of expectations.
Supply concerns intensified in favour of higher prices after Saudi Arabia and Russia announced plans to extend existing supply curbs, mitigating midweek trading losses.
The pledged production reduction is an extension of the country’s existing output cut of 1 million barrels per day (bpd) and ‘can be extended or extended and deepened’, according to a Saudi energy ministry source cited by Saudi state agency SPA.
With the latest output cut, the total production of one of the world’s largest crude oil exporters will be approximately 9 million bpd in September.
This came just minutes before Russia’s announcement to cut oil exports by 300,000 bpd in September, which Deputy Prime Minister Alexander Novak said was ‘part of efforts to ensure market stability.’
The new cuts were additions to the OPEC+ group’s already-existing output cap of around 2 million bpd announced in October 2022 and 1.6 million bpd revealed in May. #Oil Rallies as Saudi Arabia, Russia Extend Supply Cuts