The prices of oil rallied at the start of trading on Monday morning after Saudi Arabia pledged more output cuts and the 23-member Opec+ alliance extended its production agreement into 2024.
Brent, the benchmark for two thirds of the world’s oil, was trading 1.48 per cent higher at $77.26 a barrel at 4.42am UAE time on Monday. West Texas Intermediate, the gauge that tracks US crude, was up 1.46 per cent at $72.79 a barrel.
On Sunday, OPEC+members Saudi Arabia, the UAE, Iraq, Kuwait, Oman and Algeria said they will extend their voluntary oil production cuts until the end of 2024 as economic growth concerns weigh on the outlook for crude demand.
Saudi Arabia, the world’s largest crude exporter, also said it will make an additional voluntary output cut of 1 million barrels per day in July, which could be extended if required, the kingdom’s energy minister said during a press conference after Sunday’s Opec+ meeting.
“This is a Saudi lollipop,” Saudi Arabia’s Energy Minister Prince Abdulaziz told a news conference. “We wanted to ice the cake. We always want to add suspense. We don’t want people to try to predict what we do … This market needs stabilisation”.
“We will continue to hedge as long as we don’t see clarity and stability.”
The UAE, Opec’s third-largest producer, will have its voluntary cut of 144,000 bpd in place until the end of December 2024. Russia will also extend its voluntary output cut of 500,000 bpd until the end of next year.
In a separate statement on Sunday, the Opec+ alliance said it set a new production target of 40.46 million barrels per day throughout 2024.
The latest developments follow a decision in April by nine Opec+ countries that implemented voluntary cuts of 1.66 million bpd (Saudi Arabia, Iraq, UAE, Kuwait, Oman, Algeria, Kazakhstan, Gabon, and Russia). That agreement has now been extended until the end of 2024.
“This move will add limited short-term upside price pressure in the coming weeks,” said Rystad Energy senior vice president Jorge Leon.
“The long-term price development will hinge on macroeconomic sentiment and the possible extension of the voluntary Saudi Arabian production cut beyond July. The pure possibility of the Saudi production cut extending beyond July will limit downside price pressure for the rest of 2023.”
A slowing globally economy and slower manufacturing activity in China, the word’s biggest importer of crude, has weighed on oil prices. Oil prices remained below $80 per barrel in May and dropped to $73 per barrel last week, the lowest level since late 2021.
“The additional Saudi voluntary cut of 1 million bpd in July, with the option to extend, is likely to deepen the market deficit to more than 3 million bpd, which could add upside pressure in the coming weeks,” Mr Leon said.
Before the latest developments Goldman Sachs estimated Brent to trade at $95 a barrel by the end of this year from a previous $90 estimate and $100 in 2024 compared with a prior $97 forecast.
The next Opec+ ministerial meeting will take place on November 26 in Vienna.-N BUSINESS
