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Oil Prices Near 4-Month High as Saudi Arabia and Russia Extend Supply Cuts

A Surgutneftegas worker near pumpjacks in Surgut Region of the Khanty-Mansi Autonomous Area - Yugra, in the West Siberian petroleum basin.

BNR – In a notable development that has rippled through the global energy landscape, oil prices have surged to levels near their highest point since mid-April, buoyed by decisive actions taken by major oil producers Saudi Arabia and Russia. These prominent players have recently affirmed their commitment to extending supply cuts through September, resulting in a further constriction of available oil supplies.

The oil market has demonstrated remarkable resilience, showcasing a sustained upward trajectory. Last week, both key benchmarks experienced a robust rally, marking their sixth consecutive week of gains.

As of Monday, Brent crude futures exhibited a modest decline of 24 cents, resting at $86 per barrel by 0820 GMT. Simultaneously, US West Texas Intermediate crude registered a slight dip of 27 cents, settling at $82.55 per barrel.

Downgrade of US Credit Rating

Contrary to the recent downgrade of the United States’ credit rating, the broader global macroeconomic landscape maintains a positive outlook, as underscored by insights from PVM analyst Tamas Varga. The interplay between sluggish global factory activity and revitalised service sectors, coupled with controlled inflation and a resilient job market in the US, coupled with the potential approach of peak interest rates in major economies, underscores the favourable backdrop.

On the supply front, Saudi Arabia, a pivotal global oil exporter, took a decisive step by extending its voluntary production cut of 1 million barrels per day (bpd) until the close of September. This move signals a commitment to maintaining a tight supply dynamic.

Aramco Raises Oil Prices

In conjunction with these production curbs, Saudi Aramco, the state-owned oil company, has elevated the official selling prices for a majority of its grades sold to Asia for the third consecutive month in September, a testament to the market’s evolving dynamics.

Adding to the supply constrictions, Russia has also contributed to the equation by announcing its intention to reduce oil exports by a significant 300,000 bpd in September.

Coupled with these pronounced supply cuts and the anticipation of substantial depletion in oil inventories in the upcoming months, Tamas Varga underscores that the fundamental landscape is decidedly encouraging.

However, the spotlight remains fixed on forthcoming Chinese economic data, a pivotal indicator to gauge Beijing’s inclination towards further stimulus measures to bolster the world’s second-largest economy, following a lacklustre second-quarter performance.

Suvro Sarkar, lead energy analyst at DBS Bank, posits that oil prices may consolidate around the $85 per barrel threshold (Brent) for an interim period. This outlook is framed by persisting concerns surrounding the pace of China’s economic resurgence and lingering uncertainty regarding the duration of Saudi and Russia’s production and export curtailments, particularly in the presence of substantial spare capacity.


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