Crude oil prices rose at the end of trading today, Monday, June 5, 2023, to continue to reap gains for the third consecutive session, supported by the moves of the coalition of major producers in the OPEC + coalition – led by Saudi Arabia – who agreed to extend the voluntary production cut agreement until the end of December. The first is 2024.
The biggest support for the markets came from a pledge by Saudi Arabia, the world’s largest oil exporter, to cut production by another 1 million barrels per day starting in July, to counteract the macroeconomic headwinds that have stagnated the markets.
Crude oil prices today
At the end of the session, Brent crude futures contracts – August 2023 delivery – rose by 0.8%, to $ 76.71, according to what was monitored by the specialized energy platform.
US West Texas Intermediate crude futures – July delivery – rose 0.6%, to $ 72.15 a barrel.
Crude oil prices ended their dealings, on Friday, June 2, with an increase of about 2.5%, but they recorded weekly losses, and during the past week, both Brent and West Texas crude declined by about 1.1% and 1.3%, respectively.
Oil price analysis
Crude oil prices extended gains after the Saudi energy ministry said the kingdom’s production would drop to 9 million barrels per day in July from around 10 million barrels per day in May; The cut is the largest in the kingdom in years.
The voluntary reduction pledged by Saudi Arabia, on Sunday, comes on top of a broader agreement concluded by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, known as the OPEC + alliance, to limit supplies until 2024, as the alliance seeks to support market stability.
The OPEC + alliance pumps about 40% of global crude, and the alliance’s reduction reached 3.66 million barrels per day, which represents 3.6% of global demand.
“Saudi Arabia remains more vigilant than most other members in ensuring oil prices exceed $80 per barrel, which is necessary to balance its fiscal budget for the year,” said Suvru Sarkar, Head of the Energy Sector Team at DBS Bank.
He added, “It is likely that Saudi Arabia will continue to do whatever is necessary to maintain the stability of oil markets … and take calculated precautionary steps to ensure that macro concerns that may affect demand are negated.”
Oil price expectations after the OPEC + decision
Consulting firm Rystad Energy said that the additional cut by Saudi Arabia is likely to deepen the market deficit to more than 3 million barrels per day in July, which could push crude oil prices higher in the coming weeks.
Goldman Sachs analysts said the meeting was “somewhat bullish” for oil markets and could raise Brent prices in December 2023 by $1 to $6 per barrel depending on how long Saudi Arabia maintains production at 9 million barrels per day over the next six months. .
However, many of the OPEC+ cuts will have little real impact; The lower targets for Russia, Nigeria and Angola bring them in line with actual production levels.
“This is mostly a cut on paper, as it is consistent with the realities of continued lower production levels compared to current targets in some OPEC countries,” said DBS Bank analyst.
Sarkar added that in return the UAE was allowed to raise production targets by 200,000 barrels per day to 3.22 million barrels per day, Reuters reported.
Baker Hughes said, in its weekly report on Friday, that the number of drilling rigs in the United States decreased by 15 to 555 last week, the lowest level since April 2022.
Drilling in the United States has slowed since December due to weak crude prices, rising costs and companies diverting spending to pay shareholders.
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