Oil prices rose on Monday after Saudi Arabia and Russia, the world’s two largest oil exporters, reaffirmed their commitment to extra voluntary oil supply cuts until the end of the year. The announcement boosted market confidence amid ongoing geopolitical tensions and economic uncertainties.
Brent crude futures, the global benchmark for oil prices, settled 29 cents, or 0.34%, higher at $85.18 a barrel, while U.S. West Texas Intermediate crude was up 31 cents, or 0.4%, at $80.82.
Saudi Arabia confirmed on Sunday it would continue its additional voluntary cut of 1 million barrels per day (bpd) in December to keep output around 9 million bpd, a Ministry of Energy source said.
Russia also announced it would continue its additional voluntary cut of 300,000 bpd from its crude oil and petroleum product exports until the end of December.
The two countries are part of the OPEC+ alliance, which includes the Organization of the Petroleum Exporting Countries and other major producers, that agreed in April to reduce output by 9.7 million bpd to balance the market and support prices.
The OPEC+ group is scheduled to meet on November 30 and December 1 to review the current agreement and decide on the next steps.
The supply cuts by Saudi Arabia and Russia came as a surprise to some analysts, who expected the OPEC+ group to ease the curbs gradually from January 2024 as global oil demand recovers from the impact of the coronavirus pandemic.
According to the International Energy Agency, global oil demand is expected to increase by 5.8 million bpd in 2024, reaching 100.1 million bpd, after falling by 8.4 million bpd in 2020.
However, the demand outlook remains uncertain as the pandemic challenges the global economy and mobility. The resurgence of coronavirus cases in Europe and the United States has prompted some governments to reimpose lockdowns and travel restrictions, which could dampen oil consumption in the coming months.
Moreover, the oil market faces geopolitical risks as the war in Gaza between Israel and Hamas enters its second month, with no sign of a ceasefire. The conflict has raised fears of a wider regional escalation that could disrupt oil supplies from the Middle East, which accounts for about a third of global production.
A weaker dollar also helped oil prices on Monday, making oil cheaper for buyers using other currencies. The dollar index fell as low as 104.84, the weakest since Sept. 20.
Oil prices had rebounded strongly from the historic lows seen in April when WTI crude briefly turned negative due to a supply glut and a collapse in demand. Since then, oil prices have more than doubled, supported by the OPEC+ cuts, the recovery in China, the world’s largest oil importer, and the hopes for a vaccine against the coronavirus.
However, some analysts warn that the oil market remains fragile and volatile and that prices could face downward pressure if unexpected events disrupt the supply-demand balance.
The OPEC+ group will have to carefully monitor the market situation and adjust its policy accordingly to avoid a repeat of the price war in March when Saudi Arabia and Russia disagreed on extending the previous supply cuts.
Source: Reuters
