LONDON: Oil prices surged on Monday following the announcement by major exporters Saudi Arabia and Russia that they would extend supply cuts for the month of August. This news overshadowed concerns about a global economic slowdown and potential future interest rate hikes in the United States (US).
According to the state news agency, Saudi Arabia stated on Monday that it would extend its voluntary one million barrel per day (bpd) production cut for an additional month, covering August. Deputy Prime Minister Alexander Novak also announced on Monday that Russia would reduce its oil shipments by 500,000 bpd in August, aligning with Saudi Arabia’s efforts to boost global oil prices. These measures will further tighten global supply.
Russia and Saudi Arabia Working Together to Support Oil Prices
Both Moscow and Riyadh have been working together to support oil prices, which have declined from $113 a barrel a year ago due to fears of an economic downturn and an oversupply from major producers.
After a 0.8% increase on Friday, Brent crude futures rose 0.9%, or 68 cents, to $76.09 a barrel by 1021 GMT. U.S. West Texas Intermediate crude, following a 1.1% gain in the previous session, rose by around 1%, or 69 cents, to $71.33.
“As the second half of the year begins, investors are growing more optimistic. They anticipate a tighter oil market balance, and strong equity markets also suggest that a recession will likely be avoided, albeit possibly just barely,” said PVM analyst Tamas Varga.
Earlier in the day, prices had dropped due to the eurozone’s manufacturing sector declining faster than anticipated in June and ongoing tightening measures by the European Central Bank (ECB) that were putting pressure on finances.
Concerns about a further economic slowdown and reduced fuel demand grew on Friday as U.S. inflation continued to exceed the central bank’s 2% target, fueling expectations of another interest rate hike. The potential for increased interest rates could strengthen the dollar, making commodities like oil more expensive for buyers holding other currencies.
Furthermore, factory activity growth in China, the world’s largest crude importer, showed a slowdown in June, with sentiment and hiring cooling in a sluggish market environment, as indicated by the private sector survey conducted by Caixin/ S&P Global.
