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Oil prices surge as Saudi Arabia and Russia agree to reduce output in August.

ReutersJuly 3, 2023

Oil Rises as Saudi Arabia and Russia Announce Supply Cuts

By Alex Lawler and Natalie Grover

Oil prices are on the rise after top exporters Saudi Arabia and Russia revealed plans to reduce supply in August. This news has overshadowed concerns about a global economic slowdown and potential increases in U.S. interest rates.

Saudi Arabia has announced an extension of its voluntary cut of one million barrels per day (bpd) for another month, including August, according to the state news agency. In a coordinated effort, Russia will also reduce its oil exports by 500,000 bpd in August, tightening global supplies even further.

Both Saudi Arabia and Russia have been working to support oil prices, which have dropped significantly over the past year due to concerns about an economic slowdown and ample supplies from major producers.

Brent crude futures are currently up 0.9%, or 68 cents, at $76.09 a barrel, following a 0.8% gain on Friday. U.S. West Texas Intermediate crude has risen nearly 1%, or 69 cents, to $71.33, after a 1.1% increase in the previous session.

“Investors are turning upbeat as the second half of the year kicks off; they expect tighter oil balance and buoyant equities also suggest that recession will be avoided, albeit probably narrowly,” said PVM analyst Tamas Varga.

Earlier in the session, prices had fallen due to eurozone manufacturing activity contracting faster than expected in June. Additionally, fears of a further economic slowdown impacting fuel demand grew as U.S. inflation continued to outpace the central bank’s 2% target, leading to expectations of another interest rate hike.

Higher interest rates could strengthen the dollar, making commodities like oil more expensive for buyers using other currencies. Furthermore, factory activity growth in China, the world’s largest crude importer, slowed in June, adding to the concerns.

Despite these challenges, the news of supply cuts from Saudi Arabia and Russia has boosted market sentiment and provided hope for a more balanced oil market in the second half of the year.

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