On Tuesday, crude oil prices climbed 2% as investors anticipated supply cuts by key exporters, Saudi Arabia and Russia, set to take effect in August. This positive outlook persisted despite concerns surrounding the weak global economic forecast.
While markets in the US were closed for the Independence Day holiday, Brent crude rose by $1.60 to reach $76.25 per barrel, and US West Texas Intermediate closed higher by $1.44 at $71.23 per barrel.
Certain members of the Organization of the Petroleum Exporting Countries and its allies (OPEC+), led by Saudi Arabia, announced on Monday their intention to extend voluntary output cuts of 1 million barrels per day until August. Additionally, Russia and Algeria volunteered to lower their August output and export levels by 500,000 barrels per day and 20,000 barrels per day, respectively.
If fully implemented, these measures would result in a combined reduction of 5.36 million barrels per day from August 2022, potentially exceeding this amount due to certain OPEC+ members being unable to meet their output quotas. Consequently, the total cuts would exceed 5 million barrels per day, which accounts for approximately 5% of global oil output.
However, market analysts highlight that despite the recent cut announcements, the oil market dynamics have not significantly changed. Prior to these announcements, data from the International Energy Agency (IEA) indicated that the oil market was already expected to face a supply deficit of around 2 million barrels per day in the third and fourth quarters.
Concerns regarding demand persist as China’s economic recovery remains sluggish following the easing of pandemic restrictions. China’s Caixin/S&P Global manufacturing PMI fell to 50.5 in June from 50.9 in May, according to a private survey. This figure, combined with the official survey showing a continued decline in factory activity, suggests a loss of momentum in the world’s second-largest economy during the second quarter.
Furthermore, expectations of rising interest rates in the US and Europe to combat persistently high inflation add to the market’s apprehension. Manufacturing in the US experienced a further decline in June, reaching levels not seen since the initial wave of the COVID-19 pandemic.
The markets have been impacted by interest rate increases implemented by the US Federal Reserve since March 2022, as it embarked on its most rapid tightening of monetary policy in over four decades.
Pan Finance is a print journal and news website providing worldwide intelligence on finance, economics and global commerce. Known for our in-depth analysis and opinion pieces from esteemed academics and celebrated professionals; our readership consists of senior decision makers from across the globe.