Oil futures: Prices higher after Saudi cuts, OPEC+ extends deal

Quantum Commodity Intelligence – Crude oil futures Monday were higher after OPEC+ members agreed to extend current production deals, while Saudi Arabia will make additional cuts for July.

Aug23 ICE Brent futures were trading at $77.70/b (1630 BST), compared to the day's range of $76.50-$78.72/b and Friday's settle of $76.13/b.

At the same time, Jul23 NYMEX WTI was trading $72.91/b versus Friday's close of $71.74/b.

OPEC announced Sunday that producers had agreed to extend current output deals until the end of 2024, while Saudi Arabia will slash production by a further 1 million bpd in July, reducing output from the OPEC kingpin to around 9 million bpd versus its new quota of 10.478 million bpd.

However, prices were down from early-morning peaks in Asia, when oil benchmarks rallied to around one-month highs shortly after the opening.

Saudi Arabia was unable to secure production-cut commitments from other members, while energy minister Prince Abdulaziz bin Salman said he wanted to keep markets in "suspense" over the likelihood of extending the new cut beyond July.

"While the cuts once again show OPEC's commitment to support oil prices, the impact from a similar move in April has been completely erased due to the concerns about the weakness of the global economy and its impact on demand," said Ole S Hansen, Head of Commodity Strategy at Saxo Group.

"OPEC+ has in place cuts of 3.66 million bpd, amounting to 3.6% of global demand, including 2 million bpd agreed last year and voluntary cuts of 1.66 million bpd agreed in April," noted Saxo.

Targets

The group also announced on Sunday that it will reduce overall production targets from January 2024 by a further 1.4 million bpd versus current targets to 40.46 million bpd.

Compliance had been expected to be high on the list of talking points, with data showing Russia failing to implement 500,000 bpd of cuts announced earlier this year fully, but the OPEC+ communique made no reference.

Meanwhile, fund managers slashed short positions held in Brent futures by 20% in the seven days to 30 May ahead of Sunday's meeting of OPEC+ members.

Elsewhere, North American drilling activity shrunk for a fifth consecutive week, falling by the highest number of rigs since September 2021, oilfield services firm Baker Hughes reported.

Also in the US, President Joe Biden signed into law a debt ceiling bill that allowed Washington to avoid defaulting on its financial obligations over the weekend.