Crude oil prices retreated on Monday but were still trading near their strongest levels since April in the wake of the decision by Saudi Arabia and Russia – two of the largest oil exporters in the world – to extend their output cuts until the end of September. The move by both countries is seen as a way to support oil prices by tightening global markets.
Crude Oil Prices Hold Steady Near 4-Month High
The U.S. West Texas Intermediate (WTI) crude CLc1 traded at $82.73 a barrel, down 0.1% or 9 cents, while Brent crude futures LCOc1 dropped 0.1% or 10 cents on Monday to trade at $86.14.
Last month saw both contracts reach a 4-month high of double-digit gains after recording their sixth consecutive weekly gain. This was the longest winning streak for crude oil prices since December 2021 and January 2022.
But there is caution in the market as traders are waiting for key inflation data coming out of the U.S. and China this week.
Inflation Numbers Coming Out Of The U.S. And China Could Be Significant To Oil Prices
The U.S. is set to release its latest consumer price index (CPI) data this week, which is believed to be higher than June’s numbers. Increased inflation means the Federal Reserve is more likely to continue raising interest rates on the dollar to bring it down to the 2% target level.
Meanwhile, in China, inflation is said to be on the decline. The country has been faced with a tough post-COVID economic situation and recovery efforts from the government are not up to pace.
Being the world’s largest oil importer, experts predict a lesser demand for crude in the country in the coming months. On Tuesday, China will release its trade data, which will paint a much clearer picture of the demand for goods and services in the mainland. Despite its economic situation, the country has continued to import near-record-high levels of crude oil this year.
Saudi And Russia Extends Crude Oil Production And Export Cuts Until September
On the contrary, traders got a sigh of relief last week after Saudi and Russia announced they were extending oil production cuts into September. Analysts believe there will be a slowdown in demand if the supplies are tightened which could lead to a steady rise in crude price.
The Kingdom is said to limit production by 1 million barrels per day (bpd), whereas, Russia will trim its oil exports by 300,000 bpd next month onwards.
The joint announcement was made a day before the meeting between members of the Organization of Petroleum Exporting Countries and Allies (OPEC+) was to be held in Jeddah. Saudi also added that the cuts could be prolonged or “even deepened” if it is necessary to balance the market
Russia also raised concerns about the security threat it faces from Ukraine that could curtail its export economy. Last week, Ukrainian forces conducted a drone attack on a Russian warship at its naval base in Port Novorossiysk. The port located in the Black Sea is responsible for handling 2% of all global oil exports.
On Saturday, Saudi Aramco, one of the world’s largest oil refinery companies, raised its official selling prices for most oil grades sold to Asia for the third month running.
CMC Markets analyst Tina Teng pointed out three key factors that could support crude prices, which were; OPEC+’s output cuts, an improved U.S. economic condition, and China’s stimulus measures in efforts to rescue the world’s second-largest economy. She also noted that oil prices were nearing resistance levels of their mid-April highs.
Suvro Sarkar, the lead energy analyst at DBS Bank expects a bullish turn for oil prices in the second half of the year compared to the first half. He says a further upside may be limited and prices could instead consolidate around the $85 a barrel mark for Brent for some more time.
Sarkar cited the ongoing concerns about China’s recovery, and how long Saudi and Russia will continue to limit their production and exports “given the spare capacity on hand” as reasons for the hawkish prediction.
News of more stimulus measures in China has aided sentiments, despite data continuing to paint a bleak picture for the Asian giant. Market analysts at ING stated in an investor note that higher crude oil prices, ample domestic inventory, and a slowing economy will put pressure on Chinese demand in the next few months. But supportive measures undertaken by the government could improve the demand outlook for the rest of the year, added ING.
IG Markets analyst Tony Sycamore predicts a sustained break for the West Texas Index (WTI) – the crude oil that serves as one of the main global benchmarks – above $84 a barrel would trigger a move towards $93.50.
American Oil Rigs Continue To Shut Down
Meanwhile, last week, four oil rigs stopped operations in the U.S., bringing the total number to 525. According to a rig count done by oil field services company Baker Hughes, the numbers have dropped for the eighth week in a row to their lowest since March of last year.