Crude oil climbed 2 per cent on Tuesday as markets banked on August supply cuts by top exporters, Saudi Arabia and Russia, despite worries about a weak global economic outlook.
Markets in the US were closed on Tuesday for the Independence Day holiday, but this did not affect crude oil as Brent grew by $1.60 to $76.25 per barrel, and the US West Texas Intermediate closed higher by $1.44 to $71.23 per barrel.
Some members of the Organisation of the Petroleum Exporting Countries and its allies (OPEC+), led by Saudi Arabia on Monday said it would extend its voluntary output cut of 1 million barrels per day to August while 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, that would bring a combined reduction of 5.36 million barrels per day from August 2022 – possibly even more because several countries in the OPEC+ producer group are unable to fulfil their output quotas.
Crude Oil Prices Rise 2% As Market Weighs Supply Cuts
The total cuts now stand at more than 5 million barrels per day or 5 per cent of global oil output.
Market analysts, however, point out that little has changed in oil dynamics despite Monday’s announcements.
Even before the latest cut announcements, International Energy Agency (IEA) data suggested the oil market was set to show a supply deficit of roughly 2 million barrels per day in the third and fourth quarters.
The market will remain worried about demand concerns over China’s sluggish economic recovery after the lifting of pandemic restrictions.
Also, China’s Caixin/S&P Global manufacturing PMI eased to 50.5 in June from 50.9 in May, the private survey showed.
The figure, combined with the country’s official survey that showed factory activity extending declines, adds to evidence the world’s second-largest economy lost steam in the second quarter.
Meanwhile, interest rates in the US and Europe are expected to rise further to address persistently high inflation.
Manufacturing in the US also fell further in June to levels last registered in the first wave of the COVID-19 pandemic.
Interest rate increases from the US Federal Reserve since March 2022, when the central bank embarked on its fastest monetary policy tightening campaign in more than 40 years, have gripped the markets.