Oil prices rise after Saudi Arabia and Russia extend production cuts

Oil prices hit a new high for the year so far Saudi Arabia and Russia – the world’s largest crude oil exporters – said they would extend output cuts with at least another three months.

Brent crude, the global benchmark, rose 1.8% to trade above $90 a barrel. barrel, while West Texas Intermediate (WTI), the US benchmark, rose by a similar margin to $87 per barrel. barrel.

The moves by Saudi Arabia and Russia reinforce efforts by the alliance known as OPEC+ – which includes members of the Organization of the Petroleum Exporting Countries and other producers – to support oil prices by agreeing to deep and long lasting production cuts.

An official source from the Saudi Energy Ministry told the state-run SPA news agency that the kingdom would extend its production cut of 1 million barrels per day until the end of December. The decision would be “reviewed monthly to consider deepening the cut or increasing production,” the source added.

The Saudi production cut – which has been in place since July – is the biggest in years and has lowered the kingdom’s output to nine million barrels a day. The cut is in addition to a reduction previously announced by Riyadh in April 2023, which extends until the end of December 2024.

Revive inflation?

Saudi Arabia needs Brent crude to trade at around $81 a barrel to balance its budget, according to the International Monetary Fund. The kingdom slipped into a budget deficit this year after reporting a surplus in 2022 for the first time in nearly a decade.

Russia, meanwhile, is trying to raise revenue to support its war effort in Ukraine. Russia’s Deputy Prime Minister Alexander Novak said on Tuesday that the country would reduce its exports by 300,000 barrels per day until the end of 2023, also extending an earlier commitment. Novak said the decision was taken “to maintain stability and balance” in oil markets, Reuters reported.

Production cuts by OPEC+, which produces 40% of the world’s crude oil, have helped send oil prices higher in recent months, a development that could have implications for inflation and interest rates. Average US gas prices have also risen to $3.81 per gallon. gallon, a few cents above where they were this time last year.

“The recent upward trajectory in oil prices has set the stage for potentially higher [consumer price index] figures for August,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note on Tuesday.

“These impending increases in oil prices pose a new challenge for central banks as they continue their diligent efforts to bring inflation levels back in line with their desired targets.”

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