Oil futures: Prices edge up as Saudi, Russia pledge August supply cuts
Quantum Commodity Intelligence – Crude oil futures were marginally higher Monday as markets recovered from earlier lows after both Saudi Arabia and Russia pledged to further restrict supplies in August.
Sep23 ICE Brent futures were trading at $75.77/b (1610 GMT) compared to the day's range of $74.75-$76.60/b and Friday's settle of $75.41/b.
At the same time, Aug23 NYMEX WTI was trading $70.90/b versus Friday's close of $70.64/b.
Saudi Arabia announced Monday it would extend its 1 million bpd supply cut into August, while Russia said it will voluntarily reduce its oil supplies in August by 500,000 bpd. However, the uplift proved short-lived with the Saudi cut mostly priced in, while Russia has proved unreliable on implementing cuts so far this year.
"It's the usual knee-jerk reaction to reports of production cuts. "But given... it's not a coordinated move from all (OPEC+) members it seems hard to imagine there's much more upside in this," IG analyst Chris Beauchamp told AFP, also warning that "the outlook for oil demand remains firmly under pressure".
The announcements came ahead of this week's two-day OPEC International Seminar, which kicks off Wednesday, where expectations had been increasingly moving towards a Saudi extension of its 1 million bpd output cut.
"Saudi Arabia's voluntary 1 million bpd of cuts will come into effect for July, accelerating a tightening in the markets expected for the second half of the year. We expect that Saudi Arabia will choose to prolong its additional cuts over much of the rest of 2023," said Khatija Haque, Chief Economist with NBD.
Saudi Aramco will also announce Official Selling Prices for August loadings later this week, which should give further guidance on Saudi policy.
Demand
Demand growth is expected to feature at the OPEC gathering, amid recessionary and interest rate concerns in the West, along with disappointing figures from China.
"We may have officially moved into the second half of the year, but the market still has the same concerns which plagued it over much of the first half of the year. And the biggest problem at the moment is the uncertain demand outlook," said Warren Patterson, head of ING's commodity research.
China's sluggish recovery remains a concern as the Caixin/S&P Global manufacturing purchasing managers' index slipped to 50.5 in June from 50.9 in May, although it beat poll expectations of 50.2.
Otherwise, the US Department of Energy is expected to announce a further purchase of crude oil for the Strategic Petroleum Reserve this week. So far this year, the DoE has tendered for only 6 million barrels but there are suggestions that the DoE will look to buy in the region of 12 million barrels over the course of the year.
