Oil prices are up on both major benchmarks after the world’s chief exporter and leading OPEC member Saudi Arabia announced plans to cut output by another million barrels per day from next month.
Brent Crude has ticked upwards 1.2 per cent in this morning’s trading – priced at $77.04 per barrel – while WTI Crude rose 1.31 per cent to $72.68 per barrel over the same time period.
Today’s rebound in prices extends gains of more than two per cent from Friday after Saudi Arabia first trailed its pledge to slash production, when the country’s energy ministry announced its output would drop to nine million barrels per day (bpd) in July from around 10m barrels per day in May.
At the latest OPEC+ meeting yesterday, the world’s most influential oil cartel agreed to maintain its heavy cuts of 3.7m barrels of oil per day into 2024, while its most influential member announced further reductions on a unilateral basis.
This is Saudi Arabia’s biggest cut to oil production in years.
OPEC+ is an extended alliance which includes the cartel’s permanent members and allies such as including Russia, which has been slashing production aggressively over the past seven months.
This includes a two million barrel per day cut announced last November, and a further surprise 1.7m barrel per day cut in April this year, as OPEC+ looks to prop up oil prices, with Saudi Arabia eager to keep them above $80 per barrel – its break-even point.
Markets have been weighed down in recent months by gloomy economic data from Asian economies including China, which has lowered demand expectations for the year.
With Saudi Arabia’s new cuts included, the cartel has lowered output on a global basis by nearly four per cent, with OPEC+.
Oil has dropped significantly since it rose to a 14-year high of $139 per barrel following Russia’s invasion of Ukraine, with prices elevated above the $100 milestone for most of last summer.
The long-term impact of the OPEC+ reductions remains to be seen, with the cartel persistently failing to reach its modest output targets – with the lower pledges for Russia, Nigeria and Angola actually bringing them into line with their flagging production levels.
Reflecting the internal wrangling and politics of OPEC+, the UAE was permitted to raise output targets by 200,000 bpd to 3.22m bpd to ease concerns about it possibly leaving OPEC, according to news agency Reuters.
Looking Stateside, the oil rig count from the US slumped by 15 to 555 last week – which is the lowest since April 2022, Baker Hughes revealed in its weekly report on Friday.
Drilling across the US has slowed since December, hampered. by weaker prices, higher costs and as companies divert spending to repaying shareholders.
Commenting on implications in financial markets, AJ Bell investment director Russ Mould. “Saudi Arabia’s pledge to cut output suggests it wants to see an oil price above $80 per barrel and that it is concerned about the demand implications of a global economic downturn. The FTSE 100 was up 0.5 per cent in early trading, extending the gains seen on Friday after the non-farm payrolls data from the US.
“The market seems keen to take the view this is indicative of a potential soft landing for the US economy given the jobs figures were higher than expected but wage growth has cooled. For the time being investors are prepared to squint and see the sunny side of most data points, with services PMI data from across the Atlantic later today potentially proving to be the next test of the market’s optimism.