Saudi Arabia and Russia Extend Supply Cuts, Oil Prices Tread Cautiously

Global oil prices continue their tightrope walk, wavering near multi-month highs as key producers Saudi Arabia and Russia maintain their commitment to keeping supplies in check.

Brent crude oil, the international benchmark for Nigerian type of crude oil, dipped slightly to $86.14 a barrel, while U.S. West Texas Intermediate crude saw a modest decline to $82.73 a barrel.

Suvro Sarkar, lead energy analyst at DBS Bank, expects a robust second half for oil but suggests consolidation around $85 a barrel (Brent) due to concerns over China’s recovery pace and uncertainty surrounding Saudi Arabia and Russia’s production cuts.

The world’s top exporter, Saudi Arabia, recently extended its voluntary production cut of 1 million barrels per day until the end of September. Also, Russia announced a 300,000 bpd cut in oil exports for September. Nevertheless, doubts linger about the duration of these reductions, given the spare production capacity available to both countries.

China’s role in the equation remains pivotal with expectations of stimulus measures boosting oil demand recovery following a lackluster second quarter. Investors keenly await Chinese economic data this week, gauging the possibility of further stimulus to bolster the world’s second-largest economy.

Despite the positive outlook, concerns persist over near-term resistance levels, especially with oil prices approaching their April highs. Tina Teng, an analyst at CMC Markets, cites OPEC+’s output cuts, China’s economic stimulus, and an improved U.S. economic outlook as factors supporting crude prices.

On the other hand, Tony Sycamore, an analyst at IG Markets, cautions that WTI’s sustained break above $84.00 a barrel could set the stage for a potential surge towards $93.50, further adding to the volatility in the market.

In the United States, the decline in operating oil rigs continued for an eighth consecutive week, reaching their lowest count since March 2022, according to Baker Hughes’ weekly report.