By Stephanie Kelly
NEW YORK (RockedBuzz via Reuters) – Oil prices rose on Monday after the world’s top exporter Saudi Arabia pledged to cut output by an additional 1 million barrels per day (bpd) from July to counter headwinds macroeconomic factors that have depressed the markets.
Brent futures rose 58 cents to $76.71 a barrel, after hitting a session high of $78.73.
US West Texas Intermediate crude oil gained 41 cents to $72.15 after hitting an intraday high of $75.06.
Both contracts extended gains more than 2% on Friday.
The Saudi energy ministry said the kingdom’s production would drop to 9 million bpd in July from around 10 million bpd in May. The voluntary cut, Saudi Arabia’s largest in years, adds to a broader deal by the Organization of the Petroleum Exporting Countries (OPEC) and allies, including Russia, to cap supply in 2024 while the OPEC+ seeks to boost falling oil prices.
Fatih Birol, head of the International Energy Agency (IEA), said the possibility of a rise in oil prices has increased significantly after the new OPEC+ deal.
OPEC+ pumps about 40% of the world’s crude and has cut its production target by a total of 3.66 million barrels per day, or 3.6% of global demand.
“The market is still trying to assess the impact of what the Saudi output cut actually means,” said Price Futures Group analyst Phil Flynn. “Oil appears to be taking the news as very bullish, and it is.”
SEB analyst Bjarne Schieldrop said market reaction on Monday was relatively muted after OPEC+’s previous cut failed to support prices for long.
Consultancy firm Rystad Energy said the further Saudi cut was likely to exacerbate the market deficit to more than 3 million bpd in July, which could push prices higher in the coming weeks.
Goldman Sachs analysts said the production deal was “moderately bullish” for oil markets and could lift December 2023 Brent prices by between $1 and $6 a barrel, depending on how long Saudi Arabia will keep production at 9 million barrels per day.
“The immediate market impact of this Saudi cut is likely to be smaller, as inventory draws take time and the market has probably already given a significant chance of a cut today,” the bank’s analysts added.
Saudi Arabia raised prices of its flagship Arab Light crude for Asian buyers in July to a six-month high following its pledge to cut production.
Many of OPEC+’s cuts will have little real impact as lower targets for Russia, Nigeria and Angola align them with their actual production levels. Conversely, the United Arab Emirates (UAE) was allowed to raise production targets from 200,000 bpd to 3.22 million bpd to reflect its increased production capacity.
(Reporting by Stephanie Kelly; Additional reporting by Noah Browning, Florence Tan, and Emily Chow; Editing by David Goodman, Will Dunham, Alexander Smith, and David Gregorio)
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