In early Asian trade on Wednesday, oil prices experienced a slight increase. This followed a rise of over 1 percent in the previous session. The market’s concern about a potential supply shortage was a contributing factor. This concern arose after Saudi Arabia and Russia extended their voluntary supply cuts until the end of the year.
Brent crude futures saw an increase of 14 cents, reaching $90.18 per barrel (90.07 at the time of writing). Meanwhile, U.S. West Texas Intermediate crude (WTI) futures rose by 12 cents, reaching $86.81 per barrel (86.72 at the time of writing).
Investors had anticipated that Saudi Arabia and Russia would extend voluntary cuts into October. However, the unexpected three-month extension took them by surprise.
Some analysts see that the bullish moves observed in the global oil market would lead to a significant tightening and higher oil prices worldwide.
According to market watchers, it is difficult to predict the precise impact that these cuts will have on inflation and economic policy in the West. However, higher oil prices would increase the probability of implementing more fiscal tightening measures, particularly in the U.S., as a means to control inflation.
Some analysts estimate global liquids demand is projected to exceed supply by approximately 2.7 million barrels per day (bpd) in the upcoming quarter.
Due to supply concerns in the near-term, the front-month Brent futures were observed trading close to 9-month highs, with a spread of $4.10 per barrel above prices in six months. Similarly, for U.S. WTI futures, the spread between the front-month and the six-month contract widened, reaching as high as $4.47 per barrel on Wednesday. These figures indicate that the prices were hovering near 9-month highs.
Additional cuts
According to state news agency SPA, Saudi Arabia has announced its decision to extend the voluntary oil output cut of 1 million bpd for an additional three months. This extension will now be in effect until the end of December 2023.
Read more: Saudi, Russia, extend voluntary oil production cuts in August
Russia’s Deputy Prime Minister Alexander Novak made an announcement on Tuesday. He stated that Russia has extended its voluntary commitment to reduce oil exports by 300,000 bpd. This extension will be in effect until the end of this year.
The voluntary cuts implemented by Saudi Arabia and Russia are in addition to the April cut agreed upon by multiple OPEC+ producers. This April cut is set to continue until the end of 2024.
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