Crude oil prices moved modestly higher in Asia pre-noon trade today following the news that Saudi Arabia would extend its voluntary oil production cuts through August.
The Kingdom would produce some 9 million bpd of oil in August—the same level it aims for this month—and could further extend the reduction beyond August, the Saudi Press Agency reported earlier this week.
On the same day, Russia announced it would cut its oil exports by half a million barrels daily next month.
“As part of the efforts to ensure a balanced market, Russia will voluntarily reduce its oil supply in August by 500,000 barrels per day by cutting its exports to global markets by that quantity,” Deputy Prime Minister Alexander Novak said in a brief statement.
The Saudi announcement was not unexpected, which is part of the reason it did not result in any sharp changes in oil prices. The Russian update may have surprised but not enough to start any significant price rallies.
Trader sentiment appears to be strongly bearish as traders focus on economic updates from major consuming countries such as China, the United States, and the European Union. These updates seem to point to weak oil demand, prompting in turn scepticism about oil prices.
“Fundamentals are not having as much influence on price direction as one would expect. Instead, the uncertain macro outlook is what the market is focused on,” Warren Patterson, the head of commodities strategy at Dutch ING, said in a note.
Noting that the Saudi cut extension was largely expected and that, if the Saudis had failed to extend it this could have pushed prices lower, Patterson also said “This leaves the Saudis in a difficult spot for the next few months, as they will have to be careful how they wind down this supply cut in the current environment.”
By Irina Slav for Oilprice.com
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The reason is that the weakness of oil prices since the start of the year has nothing to do with global oil demand or market fundamentals or China’s economy.
Oil prices will remain under pressure as long as there are fears of a global banking or financial crisis triggered by US banking difficulties and also fears that further hikes in interest rates by the US Federal Bank could cause of one or two more US commercial banks to collapse to add to the three banks who collapsed earlier in the year..
And while economic data from the United States and the EU are strongly bearish with the US economy and the EU's projected to grow in 2023 at 1.2% and 0.8% respectively, data from China are absolutely bullish with China’s economy projected to grow this year at 5.2%-6.5% and with its crude oil imports breaking records and hitting 13.0 mbd, the highest in its history.
China leads the Asia-Pacific region which is the vibrant half of the world economy accounting for 51% of global GDP with the highest growth rates and the lowest inflation.
On the other hand, the United States and the EU belong to the other half which is lagging in economic growth and virtually stagnant with the highest rate of inflation.
So China’s economy shouldn’t be lumped together with other lagging economies like Western ones.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert