Oil prices jumped early on Tuesday, after Saudi Arabia reported that it had cut its crude oil production in July compared to June, in a move seen as an attempt to avoid another glut that could put downward pressure on the price of oil.
At 10:07 a.m. EDT on Tuesday, WTI Crude was up 1.28 percent at $68.06 and Brent Crude was trading up 1.43 percent at $73.65, ahead of API's U.S. inventory report later today.
Despite its earlier pledge to boost crude oil supply to offset supply disruptions, Saudi Arabia's oil production in July slipped by 52,800 bpd from June to average 10.387 million bpd last month, according to the secondary sources in OPEC's closely watched Monthly Oil Market Report published on Monday. Saudi Arabia's self-reported figure pegs the drop at 200,000 barrels per day for the month.
Analysts believe that one reason for the lower production in July was that Saudi Arabia didn't see demand for its crude oil as high as it had expected earlier.
In the middle of July, Saudi Arabia's OPEC governor Adeeb Al-Aama said that the Kingdom would see its July exports drop by around 100,000 bpd as it was unwilling to push the market into oversupply beyond the customers' needs.
In its latest report, OPEC revised down demand for the cartel's crude oil for next year, and revised slightly down its estimates for global oil demand growth compared to the previous month's report.
Discussing oil prices in July, OPEC said in the Monday report:
"Brent flipped into contango with activity running low amid a perceived rise in oil supply and increasing floating storage levels in Europe."
Contango-the market structure in which front-month prices are lower than prices out in the future months-points to an oversupply and makes storing oil for future sales profitable. Related: The Real Reason Behind The Next Oil Squeeze
There are a lot of unsold crude oil cargoes around the Atlantic Basin and traders find it hard to place crude from floating storage, traders told Reuters this week. Some two-thirds of the Nigerian crude for loading this month and next is still unsold, and the premiums for Nigerian crude grades to dated Brent have been slipping in recent days.
So Saudi Arabia's production cut for July could be a sign that the Kingdom wants to avoid another glut.
"We do not think that Saudi Arabia is interested in seeing Brent crude below $70 a barrel," SEB commodities analyst Bjarne Schieldrop told Reuters on Tuesday.
By Tsvetana Paraskova for Oilpice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More