Oil prices rose by over $2 per barrel during Monday morning’s Asian trading session after Saudi Arabia reportedly announced it will cut production by an extra one million barrels per day in July.
West Texas Intermediate futures maturing in July were trading 1.74% higher at $72.99 per barrel at the time of writing. Similarly, Brent futures maturing in August were trading 1.55% higher at $77.31 per barrel. The United States Brent Oil Fund BNO closed 2.88% higher on Friday while the Vanguard Energy Index Fund ETF VDE gained 3.12%.
Also Read: How to Invest in Oil
The unexpected move by Saudi Arabia comes at the cost of ceding ground to two of its key allies including Russia, which made no commitment to trim output further, and the United Arab Emirates, which got a higher production quota for 2024, reported Bloomberg. OPEC+ has agreed to extend the voluntary cuts it announced in April to the end of 2024.
Saudi Energy Minister Prince Abdulaziz bin Salman stated he "will do whatever is necessary to bring stability to this market."
The additional cuts announced on Sunday will bring Saudi production to nearly 9 million barrels a day in July, which is the lowest level witnessed since June 2021 when output was still recovering from the lows of the Covid-19 pandemic, the report said.
Expert Take: The additional cut could be extended further but the Saudis will keep the market "in suspense" about the decision according to Prince Abdulaziz. The minister has repeatedly cautioned bearish oil speculators.
Bob McNally, president of consultant Rapidan Energy Group, told Bloomberg for the near term, crude prices will largely depend on a test of wills. It will be a battle between stability-seeking Saudi Arabia and bearish paper traders," he said.
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