Global oil markets were welcomed early Monday (3 July 2023) by Saudi Arabia, which announced an extension of a voluntary output cut of 1 million barrels per day (bpd) until the end of August.

The cuts originally offered unilaterally by Saudi Arabia for July – at the last meeting of the Organization of the Petroleum Exporting Countries (OPEC) and the Russia-led OPEC+ group on June 4, 2023 and called “lollipop” for oil markets from the country’s energy minister, Prince Abdulaziz bin Salman — now looks set to last for most of the US summer season.

A statement issued by the Ministry of Energy through the official Saudi Press Agency said: “This additional voluntary reduction is intended to strengthen the preventive efforts of OPEC+ countries to promote the stability and balance of oil markets.”

Almost in tandem with the Saudi move came an overture from Russia, as reported by a also “voluntarily cut” 500,000 bpd for August through a reduction in costs intended for export. Of course, like previous Russian promises to cut production, this latest overture would once again come under scrutiny from data aggregators.

So whether Moscow will actually go through with its commitment remains to be seen. But there is no doubt that Saudi Arabia’s latest move will keep Riyadh’s main output around 9 million bpd, down from a pre-April production rate of 10.5 million bpd and official production capacity of nearly 12 million bpd.

Normally, any announcement of a 1.5 million bpd cut is likely to rattle the global oil market, but the latest Saudi-Russian move again failed to move the intraday needle enough. European trading saw Brent and West Texas Intermediate (WTI) futures up just over 1% in the first month, but almost all gains were lost as US trading picked up steam.

At 2:36 p.m. EDT Monday, Brent was trading at $74.80 a barrel, up 17 cents, or 0.21%, while WTI was up 16 cents, or 0.23%, at $70.01 a barrel. Overall, both benchmarks remain in a range, which is $71.50/$72 to $76.50/$77 for Brent – ​​often seen as a global proxy benchmark.

Only when these support levels (i.e. the points at which the price regularly stops falling and rises again) and resistance levels (i.e. where the price usually stops rising and falls back down) are broken, can we begin to believe that a deeper rooted shift

Such a shift does not seem likely in the foreseeable future. Global central banks remain hawkish to fight rising inflation at the expense of the broader recovery; China’s short-term economic fortunes they are flattering to deceive; and American consumers are in a positive but not entirely exuberant mood this summer.

A look at Brent contracts for January, February and March 2024 – all trading below the current price for the first month – suggests that the oil market is still in a backwardation phase.

It means that the price of oil in the current/previous month is trading higher than the prices quoted in the futures market further down the line. All in all, the supply cuts just aren’t quite coming down yet; and probably won’t until the macroeconomic climate is a little more certain.

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