Oil prices inched higher on Monday as two major oil exporters, Saudi Arabia and Russia, confirmed their commitment to continuing extra voluntary oil supply cuts until the end of the year.
Brent crude futures settled at $85.18 per barrel, registering a gain of 29 cents, or 0.34%, while U.S. West Texas Intermediate (WTI) crude climbed by 31 cents, or 0.4%, reaching $80.82.
Saudi Arabia’s Ministry of Energy sources announced on Sunday that the country would persist with an additional voluntary reduction of 1 million barrels per day (bpd) in December. This move is aimed at maintaining output at around 9 million bpd.
Russia also conveyed its commitment to sustaining an extra voluntary cut of 300,000 bpd from its crude oil and petroleum product exports until the end of December.
John Kilduff, a partner at Again Capital LLC in New York, commented on these decisions, stating, “The announcement shows that Saudi has its shoulder to the wheel as it looks to tighten markets and increase prices.”
There is a possibility that these supply cuts could be extended into the first quarter of 2024 due to several factors, including the seasonal dip in oil demand at the beginning of each year, ongoing concerns about economic growth, and the shared objective of oil producers and OPEC+ to support stability and balance in the oil market, as mentioned by UBS strategist Giovanni Staunovo.
Oil prices made a rebound following a week that saw both benchmarks lose approximately 6% in value up to November 3, as concerns about supply, linked to tensions in the Middle East, eased.
Furthermore, a weaker dollar provided additional support to oil prices. The dollar index dropped to as low as 104.84, marking its weakest level since September 20. A weakened dollar typically boosts demand for crude oil purchases by foreign currency holders.
However, oil prices were affected by a reduction in crude throughput at Chinese and U.S. refineries. Chinese refineries have been reducing their operations from record levels in the third quarter due to eroding profit margins and a shortage of export quotas until the end of the year. On the U.S. front, crude oil refiners are expected to scale back operations this quarter following a robust summer season, as weak gasoline margins and maintenance activities moderate their operational targets.
Investors are closely monitoring economic data from China on Tuesday, particularly following weak October factory data released last week. Macroeconomic concerns persist in Europe as well, with Purchasing Managers’ Index (PMI) data indicating an accelerated downturn in eurozone business activity in October due to weakening demand.
Bank of England Chief Economist Huw Pill noted that it might be until the middle of the next year before the bank considers reducing interest rates from their current 15-year high. A lower borrowing cost is expected to stimulate spending and subsequently, demand for crude oil.
