Oil prices struggle to rebound despite latest cuts from Saudi Arabia and Russia
Fresh supply cuts from top exporters Saudi Arabia and Russia has failed to drive up prices for oil, with only slight gains on both major benchmarks in this morning’s trading.
Brent Crude has risen 0.6 per cent to $75.10 per barrel, while WTI Crude has climbed 0.66 per cent to $70.25 per barrel.
This reflects continued caution from investors with clear fundamentals and tight market supply being outweighed by concerns over the global economy and its impact on demand.
Saudi Arabia, the de-facto leader of OPEC, announced yesterday that its pledged 1m barrels per day (bpd) output cuts will be extended for another month until August, and could be expanded further into the year.
Following the announcement, Russian Deputy Prime Minister Alexander Novak revealed Russia would cut its oil exports by 500,000 bpd in August.
Both countries are members of OPEC+, which has been cutting supplies in a bid to boost prices since last year.
However, concerns over a global economic slowdown and possible further interest rate increases from the US Federal Reserve mean the cartel has failed to move prices beyond the $70-80 per barrel range.
The cartel, which pumps nearly 40 per cent of the world’s crude oil, already has in place cuts of 3.66m bpd, amounting to 3.6 per cent of global demand.
The latest moves have also had minimal effects on prices, with concerns over Chinese demand spooking investors.
Ian Williams, analyst at Peel Hunt believed prices were at an impasse, with oil steady “as traders weighed further output cuts by Saudi Arabia and Russia vs the subdued demand outlook.”
Ashley Kelty, analyst at Panmure Gordon said: “The volatility that we saw in first quarter for oil has largely fallen away as the disconnect between fundamentals and sentiment grew wider. Consequently, this gave no clear direction for investors (of either the long or short persuasion), with prices tending to drift backwards. We continue to view energy markets as being sentiment driven, with over-reactions to events and that underlying fundamentals remain ignored.:
The investment group remains “bullish on the outlook for both oil and gas in the near term,” predicting tightening markets later in the year as consumption rises amid winter weather in Europe and an awakening Chinese economy.
The International Energy Agency and OPEC both still expect prices to rise in the second half of the year and have published optimistic outlooks for prices over third and fourth quarters of 2023.