Brent crude rose above $90 a barrel for the first time since November as major OPEC+ producers extended their supply cuts until the end of the year.
In a move that risks a further inflationary boost to the global economy, Saudi Arabia will continue its unilateral production cut of 1 million barrels a day until December, according to a statement in state press agency. The move will keep output around 9 million barrels a day, the lowest level in several years, for a total of six months.
Russian Deputy Prime Minister Alexander Novak announced in a separate statement that his country’s export cut of 300,000 barrels per day would be extended for the same length of time, the latest sign that Riyadh and Moscow are at loggerheads over policy. oil company
Brent crude settled into overbought territory with its relative strength index after rallying last week, leaving traders braced for a technical correction. Still, oil markets have tightened as demand rises to record levels and inventories fall. Even growing concerns about Chinese economic growth haven’t been able to prevent a summer rally.
The price hike is likely to spur unrest in the United States, where the Biden administration is seeking to stave off the threat of $4-a-gallon gas. Prices are currently at their highest seasonal level in more than a decade, even though the Labor Day holiday marked the end of the summer driving season in the United States. A further rise in inflation would squeeze consumers and risk derailing efforts by central banks around the world to quell inflation.
The United States has “regular engagement with the Saudis on multiple levels: with their energy secretary, with their leadership,” National Security Adviser Jake Sullivan told reporters at a briefing on Tuesday after the decision of OPEC +. “And that’s going to continue and we’re going to make sure they understand where we’re at, and we’re going to get to understand where they’re at as well.”
The decision comes after markets saw Iranian crude exports rise in August as backdoor diplomatic efforts with the United States appear to be easing pressure on the Middle Eastern nation. However, exports that have dampened global markets are likely to have already peaked for the year as demand in Asia eases with the end of summer.
The Saudis’ move exceeded market expectations. Twenty of 25 traders and analysts polled by Bloomberg last week had predicted the additional cut would be extended for another month.
“Today’s development is a stark reminder to short sellers not to position against the Central Bank of oil,” said Michael Tran, managing director of RBC Capital Markets LLC. “The Saudis would prefer to overtighten rather than correct course later, given that the global seasonal peak in demand is in the rear view, especially given the soft macro framework in China.”
The kingdom first introduced its additional supply cut in July, deepening reductions already made with OPEC+ alliance partners. With most coalition members already suffering production losses due to underinvestment and operational disruptions, Riyadh chose to go largely solo to support prices.
Prices:
- Brent for November settlement rose $1.04 to settle at $90.04 a barrel in New York.
- WTI for October delivery rose $1.14 to settle at $86.69 a barrel from Friday’s close.
- Due to a holiday Monday in the United States, operations on this day will be reserved on Tuesday.
Defending the market has come at a cost to the Saudis. The kingdom suffered the biggest downgrade of the International Monetary Fund’s economic growth projections because of the sales volumes it is losing. However, it appears to be an acceptable price for the kingdom, which may need oil at nearly $100 a barrel to cover the ambitious spending projects of Crown Prince Mohammed bin Salman, according to Bloomberg Economics.
“This voluntary cut decision will be reviewed monthly to consider deepening the cut or increasing production,” according to the statement published by SPA. Saudi Arabia aims to support “the stability and balance of oil markets”.
-With the assistance of Yongchang Chin and Jenny Leonard.
