London, 5 June, 2023 (GNP): Oil prices rose $1 per barrel on Monday due to Saudi Arabia’s pledge to reduce output by an additional 1 million barrels per day starting in July, preventing the macroeconomic headwinds that have been weighing on markets.
Brent crude futures were $77.15 a barrel, up $1.37, or 1.8%, at 11:00 GMT from the session high of $78.73.
After reaching an intraday high of $75.06 per barrel, West Texas Intermediate (WTI) crude in the United States rose $1.39, or 1.9%, to $73.13 per barrel.
On Friday, the contracts gained more than 2% after the Saudi oil ministry announced that the kingdom’s output would fall to 9 million barrels per day (bpd) in July, down from about 10 million bpd in May. This decline is the biggest Saudi Arabia has seen in a long time.
The voluntary reduction announced by Saudi Arabia on Sunday is on top of a larger agreement by the Organization of the Petroleum Exporting Countries (OPEC) and their allies, including Russia, to limit supply into 2024 as the organization strives to support falling oil prices.
The OPEC+ group produces almost 40% of the world’s petroleum and has pledged to decrease 3.66 million bpd, or 3.6%, of demand worldwide.
“Saudi Arabia is more focused than most other members on maintaining oil prices over $80 per barrel, which is necessary for balancing its financial budget for the year,” Suvro Sarkar from DBS Bank stated.
According to consulting firm Rystad Energy, Saudi Arabia’s additional cut will likely cause the market gap to reach more than 3 million barrels per day in July, which might raise prices in the upcoming weeks.
The reduced targets for Russia, Nigeria, and Angola align them with their actual production levels, so many of the OPEC+ cutbacks won’t have much of an impact.
On the contrary, the United Arab Emirates (UAE) was permitted to increase output targets by 200,000 bpd to 3.22 million bpd to allay concerns about it possibly quitting OPEC, according to Sarkar.