Oil shoots higher after Saudi extends 1 million bpd output cuts till September; Brent at $84/bbl
3 min read 03 Aug 2023, 08:42 PM ISTBack home, on the Multi Commodity Exchange (MCX), crude oil futures due for an August 21 expiry, were last trading higher by 2.15 per cent at ₹6,697 per bbl, having swung between ₹6,518 and ₹6,714 per bbl during the session so far
PremiumOil prices snapped its tow-day losing streak and jumped higher on August 3 after Saudi Arabia extended its voluntary one million barrel per day (bpd) output cut by another month to the end of September. In June, the Organization of the Petroleum Exporting Countries and allies (OPEC+) agreed on a broad deal to limit oil supply into 2024, and Saudi Arabia pledged an additional voluntary cut for July.
Early last month, Saudi Arabia said it would extend the cut for another month to include August. Since then, it has been widely expected to extend the reduction through September. Russia will also cut oil exports by 300,000 bpd in September, announced Deputy Prime Minister Alexander Novak shortly after the Saudi Arabia's decision.
Brent crude futures were up 76 cents to $83.96 a barrel, while US West Texas Intermediate crude was 83 cents higher at $80.32. Both benchmarks rose by more than $1 earlier in the session. Earlier this week, oil prices hit three-month highs, as tighter supplies and rising demand outweighed concern that interest rate hikes and stubborn inflation could deter economic growth.
Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for an August 21 expiry, were last trading higher by 2.15 per cent at ₹6,697 per bbl, having swung between ₹6,518 and ₹6,714 per bbl during the session so far, against a previous close of ₹6,556 per barrel.
Oil prices rose despite concerns that some central banks around the world will keep increasing interest rates to reduce stubborn inflation, which could slow economic growth and reduce oil demand.
Saudi Arabia's output cuts may extend even further
The OPEC leader’s cut of 1 million barrels a day will now last into September, leaving the output at about 9 million bpd, and may “be extended, or extended and deepened," according to a statement on the state Saudi Press Agency. West Texas Intermediate rose 2.6 per cent to settle above $81 a barrel.
Crude rallied last month, with WTI erasing its year-to-date losses, after the OPEC+ announced cuts. The surge had lifted prices to the highest since April, spurring concerns that they may pull back after such a rapid gain. Oil dropped by 2.3 per cent on Wednesday following a downgrade of US credit by Fitch Ratings that weighed on broader markets.
“This additional voluntary cut comes to reinforce the precautionary efforts made by OPEC countries with the aim of supporting the stability and balance of oil markets," according to Saudi Arabia officials.
A series of production cuts over the past year has failed to substantially boost prices amid weakened demand from China and tighter monetary policy aimed at combatting inflation. Brent has largely hovered between $75 and $85 a barrel since last October. OPEC , which pumps around 40 per cent of the world's crude, has been limiting supply since late 2022 to support the market.
Why are Saudi Arabia and Russia cutting oil supply?
The Saudis are particularly keen to boost oil prices in order to fund Vision 2030, an ambitious plan to overhaul the kingdom's economy, reduce its dependence on oil and create jobs for a young population. The plans include several massive infrastructure projects, including the construction of a futuristic $500 billion city called Neom, according to The Associated Press.
Higher prices would also help Russian President Vladimir Putin fund his war on Ukraine, as Western countries have used a price cap to try to cut into Moscow's revenues, as per the report. Western sanctions mean Moscow is forced to sell its oil at a discount to countries like China and India. Its estimated export revenue fell by $1.4 billion to $13.3 billion in May, down 36 per cent from a year ago, the International Energy Agency said in a report in June.
On Friday, the OPEC Joint Ministerial Monitoring Committee is due to hold an online review of the market to gauge the impact of the supply reductions, according to Bloomberg.
