Oil rises due to a Saudi plan to deepen production cuts from July

LONDON (Reuters) – Oil prices rose more than $1 a barrel on Monday after top crude exporter Saudi Arabia pledged to cut output by another 1 million barrels per day from July to counteract macroeconomic headwinds that have stagnated markets. .

Brent crude futures rose $1.37, or 1.8%, to $77.50 a barrel by 1100 GMT, after touching a session high of $78.73.

US West Texas Intermediate crude rose $1.39, or 1.9%, to $73.13, after hitting an intraday high of $75.06.

The two contracts extended gains of more than 2 percent on Friday after the Saudi energy ministry said the kingdom’s production would fall to 9 million bpd in July from about 10 million bpd in May. The cut is the largest in Saudi Arabia in years.

The voluntary cut comes on top of a broader agreement struck by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia to limit supplies until 2024 as the OPEC+ oil producing group seeks to prop up plunging oil prices.

OPEC + pumps about 40% of global crude and reduced production targets by a total of 3.66 million barrels per day, equivalent to 3.6% of global demand.

“Saudi Arabia remains more vigilant than most other members with regard to ensuring oil prices exceed $80 per barrel, which is necessary to balance its fiscal budget for the year,” said Suvru Sarkar, Head of the Energy Sector Team at DBS Bank.

SEB analyst Bjarne Schieldrop said the market reaction on Monday was relatively muted after a previous cut by OPEC+ failed to support prices for long.

“The price of oil is moving cautiously higher today as investors are cautious after having burned their fingers on the (previous) rally caused by the production cut to (approximately) $90 a barrel, which subsequently faltered.”

Consulting firm Rystad Energy said the additional Saudi cut is likely to deepen the market deficit to more than three million barrels per day in July, which could push prices higher in the coming weeks.

Goldman Sachs analysts said the meeting was “rather bullish” for oil markets and could raise Brent prices in December 2023 by between $1 and $6 a barrel depending on how long Saudi Arabia maintains its production at 9 million barrels per day over the next six months.

The bank’s analysts added, “The immediate impact of this Saudi cut on the market is likely to be less, as it takes time to draw down inventories, and the market is likely to already lay out some meaningful possibilities for a cut today.”

However, many of the OPEC+ cuts will have little real impact, as the lower targets of Russia, Nigeria and Angola bring them in line with actual production levels.

In contrast, the UAE was allowed to raise production targets by 200,000 bpd to 3.22 million bpd to reflect its larger production capacity.

(Reporting by Noah Browning) Additional reporting by Florence Tan and Emily Zhao Editing By David Goodman

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