Oil Prices Gain as Russia and Saudi Arabia Continue Supply Cut, Other Factors
Oil futures edged higher on Monday after Saudi Arabia and Russia reiterated plans to keep voluntary supply reductions until the end of 2023. Crude oil prices were also boosted by growing convictions that the Federal Reserve will not impose more rate hikes following recent economic data.
UBS Analyst Says Supply Cuts Could Extend to Q1 2024
Oil prices rose over 1% on Monday after top global exporters Saudi Arabia and Russia said they would stick to their voluntary supply cuts until the end of 2023. The announcement pushed Brent crude futures 1.2% higher to $85.86 a barrel, while the West Texas Intermediate (WTI) futures climbed almost 2% to $81.56 a barrel.
The rebound came after Saudi Arabia reaffirmed on Sunday it plans to continue with its extra voluntary supply reductions of 1 million barrels per day (bpd) in December to maintain output close to 9 million bpd. Elsewhere, Russia also said it would continue its cut of 300,000 bpd from its crude oil and petroleum product exports until the end of 2023.
Furthermore, there is a possibility that the reductions could extend into Q1 2024, said UBS strategist Giovanni Staunovo, citing “seasonally weaker oil demand at the start of the year, ongoing economic growth concerns, and the aim of producers and OPEC+ to support the oil market’s stability and balance.”
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Expected End of Rate Hikes Supports Oil Prices
The rebound in oil prices follows a 6% drop in the week to November 3. However, according to industry consultants and traders, today’s gains could have been limited by an easing of crude throughput at Chinese refineries as refinery runs continue to ease from record levels in Q3 due to diminishing profit margins and a scarcity of export quotas to the end of the year.
Meanwhile, market expectations of ending the US Federal Reserve’s monetary policy tightening also added upward pressure on oil prices. Investors’ hopes that the Fed will stop raising interest rates grew after the US economy’s employment growth missed expectations, signaling a long-awaited softening of the tight labor market.
A recent Reuters poll showed experts expect crude prices to remain below $90 this year and in 2024 unless the ongoing conflict in the Middle East drags in more countries and tightens the supply. According to a survey of 40 economists and analysts, Brent crude is projected to average $84.80 in 2023 and $86.62 in 2024.
Do you agree with economists’ views that crude oil prices will not surpass $90 a barrel this year and in 2024? Let us know in the comments below.