- Saudi Arabia declared an extension of its voluntary output reduction of 1 million barrels per day (bpd) until August.
- US crude stocks decreased by around 4.4 million barrels last week.
- The market is focused on interest rates, with expectations of further rate hikes by the US and European central banks.
On Wednesday, US crude oil surged approximately 3%, narrowing the price difference with the global benchmark Brent. This was a response to the supply cuts announced by Saudi Arabia and Russia on Monday.
Saudi Arabia, the largest crude exporter globally, declared an extension of its voluntary output reduction of 1 million barrels per day (bpd) until August. Similarly, Russia and Algeria will lower their August output and export levels by 500,000 bpd and 20,000 bpd, respectively.
According to PVM analyst Tamas Varga, if OPEC fully implements these measures, it would result in a combined reduction of 5.36 million bpd starting August 2022. It is possible that the actual reduction could be even higher due to certain countries within the OPEC+ producer group being unable to meet their output quotas.
The oil market rose due to the ongoing collaboration between Russia and Saudi Arabia as part of the OPEC+ alliance. During Wednesday’s session, both benchmarks reached their highest level in nearly two weeks.
According to UBS analyst Giovanni Staunovo, the oil market will likely get tighter due to the voluntary cuts in July and the extension into August. However, investors will likely remain cautious until significant reductions in oil inventories are observed.
While US crude stocks decreased by around 4.4 million barrels last week, gasoline and distillate inventories experienced a rise. Oil prices remained largely unchanged following the release of the API data. Official government data on US inventories will come out on Thursday at 11:00 a.m. EDT (1500 GMT).
Moreover, this week’s inventory reports, coinciding with the peak US travel season during the Fourth of July, could significantly impact oil prices.
Furthermore, Morgan Stanley has revised its oil price forecasts, projecting a market surplus in the first half of 2024 due to non-OPEC supply growth surpassing demand next year.
China manufacturing PMI (Source: S&P Global, National Bureau of Statistics)
Weighing on prices, recent surveys have indicated a decline in global factory activity, reflecting sluggish demand in China and Europe. Additionally, the market is focused on interest rates, with expectations of further rate hikes by the US and European central banks to curb persistently high inflation.
