Economy 3 MIN READ

Oil extends gains, hovers at four-month highs on OPEC+ cuts

August 7, 2023By Reuters

 – Oil prices extended gains on Monday to touch their highest levels since mid-April after top producers Saudi Arabia and Russia pledged to keep supplies down for another month to tighten global markets further and support prices.

Brent crude futures rose 25 cents, or 0.3%, to USD 86.49 a barrel by 0023 GMT, while US West Texas Intermediate crude was at USD 83.05 a barrel, up 23 cents, or 0.3%.

Both contracts notched their sixth consecutive weekly gains last week, the longest winning streak since December 2021 to January 2022.

Several factors have underpinned prices in recent weeks including expectations of US interest rate hikes tapering off, a reduction in OPEC+ supplies and hopes of stimulus boosting oil demand recovery in the world’s top crude importer China after a dismal second quarter.

The world’s top exporter Saudi Arabia on Thursday extended its voluntary production cut of 1 million barrels per day (bpd) to the end of September, adding that it could be extended beyond then or deepened. The kingdom’s production for September will be around 9 million bpd.

Russia said on Thursday would cut oil exports by 300,000 bpd in September. In addition, a Russian warship was last week seriously damaged in a Ukrainian naval drone attack on Russia’s Black Sea navy base at Novorossiysk. The port that handles 2% of the world’s oil supply has resumed operations.

Saudi Arabia’s comments that the cuts may be deepened caught the attention of the market, ANZ analysts said in a note.

Tightening supplies and falling inventories have also seen key physical crude market indicators strengthen in recent weeks, the ANZ analysts added.

In line with production cuts, Saudi Aramco raised on Saturday the official selling prices for most grades it sells to Asia for a third month in September.

OPEC+’s output cuts, China’s stimulus measures, and an improved US economic outlook are supporting crude prices, CMC Markets analyst Tina Teng said in a note, although she said prices were approaching near-term resistance of their April highs.

IG market analyst Tony Sycamore said a sustained break for WTI above USD 84.00 a barrel would open a move towards USD 93.50.

Investors will watch for Chinese economic data this week to gauge Beijing’s appetite for more stimulus measures to support the world’s second-largest economy.

In the US, the number of operating oil rigs fell by four to 525 last week, dropping for an eighth week in a row to their lowest since March 2022, Baker Hughes said in its weekly report on Friday.

(Reporting by Florence Tan; Editing by Jamie Freed)

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