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Crude Oil price jumps 2% on Saudi plan to deepen output cuts from July

On Monday, the price of a barrel of oil increased by more than one dollar as a response to Saudi Arabia’s announcement that it will reduce production by an additional one million barrels per day beginning in July. This was done to combat the macroeconomic headwinds that have been depressing market prices. At 00:14 GMT, the price of a barrel of Brent oil had increased by $1.51, or 2%, to $77.64. Earlier in the trading session, the price of a barrel of Brent crude had reached a session high of $78.73.

After reaching an intraday high of $75.06 a barrel, the price of West Texas Intermediate oil in the United States rose $1.41, which is equivalent to 2%, to $73.15 a barrel. Both futures extended their gains after increasing by more than 2% on Friday as a result of the Saudi oil ministry’s announcement on Sunday that the kingdom’s production will decrease to 9 million barrels per day (bpd) in July from about 10 million bpd in May. This would be the largest decline in production that the country has seen in years.

The Organisation of the Petroleum Exporting Countries (OPEC) and its allies, which include Russia, have reached a larger agreement to restrict production until 2024 in an effort to increase lagging oil prices. Saudi Arabia’s promise of a voluntary reduction comes on top of this broader agreement. OPEC and its allies pump almost forty percent of the world’s crude oil and have agreed to decrease production by 3.66 million barrels per day, which is equivalent to meeting 3.6% of the demand worldwide.

“The move by Saudi Arabia is likely to come as a surprise, considering the most recent change to quotas had only been in effect for a month,” analysts from ANZ said in a note. “The most recent change to quotas had only been in effect for a month.” The current state of the oil market suggests that the second half of this year may see much more volatility.

According to Rystad Energy, a consultancy, the further reduction by Saudi Arabia is projected to increase the market deficit to more than 3 million bpd in July, which might drive prices higher in the following weeks. The market shortfall was estimated to have occurred as a result of the additional cut by Saudi Arabia. According to experts from Goldman Sachs, the conference was “moderately bullish” for the oil markets. They predict that prices for December 2023 Brent might increase by $1 to $6 per barrel depending on how long Saudi Arabia keeps its production at 9 million barrels per day over the next six months.

However, many of these reductions will have no practical effect since the group cut the objectives for Russia, Nigeria, and Angola to put them in line with their actual production levels. This brought the targets for those three countries into alignment with the rest of the group.

In contrast, the United Arab Emirates was given permission to increase its production objectives by around 200,000 barrels per day, bringing the total to 3.22 million barrels per day. According to ANZ’s statement, “UAE has been given permission to increase output at the expense of African nations, which had their unused quotas reduced as a result of the new agreement.”

According to a report published by Baker Hughes Co. on Friday, the number of active oil rigs in the United States dropped by 15 to 555 last week, marking its lowest level since April 2022. Since December, drilling activity has slowed down as a result of lower prices, greater expenses, and the fact that corporations have redirected investment to repay shareholders.

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