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Oil Takes A Breather After OPEC+ Fueled Rally

Oil prices on Tuesday jumped nearly 3% to the highest since November after OPEC+ heavyweights Saudi Arabia and Russia announced an extension of their respective production cuts

Brent crude futures for October delivery climbed 2.2% to $91.08 a barrel, while front-month Nymex crude oil futures for October rose 2.7% to $88.02 a barrel, before giving up some of those gains later on Wednesday. 

At 11:06 a.m. ET on Wednesday, Brent was trading at $89.47, down 0.63% on the day, while WTI was trading at $86.28, down 0.47%. 

Crude prices have now climbed about 30% since mid-June mainly on lower global supplies.

Back in July, Saudi Arabia announced it would cut one million barrels a day, equivalent to ~10% of its typical output while Russia’s voluntary cut is 300,000 barrels a day. Saudi Arabia's reduction makes up more than a third of the total OPEC+ cuts.

Last month, commodity analysts at Standard Chartered projected large inventory draws peaking at 2.9 mb/d in August. StanChart estimates that June demand was about 0.5 mb/d below August 2019’s all-time high, but said the record would be exceeded in the current month. According to the analysts, highly effective producer output restraint, led by Saudi Arabia, will create the conditions for a price rally that will take Brent prices onto their Q4-average forecast at $93/bbl, with a likely intra-quarter high above $100/bbl.

Meanwhile, U.S. shale output has continued to grow. The Energy Information Administration (EIA) has forecast total U.S. output will hit 12.61M bbl/day in the current year, eclipsing the previous record of 12.32M bbl/day set in 2019's and easily beating last year's 11.89M bbl/day.  U.S. crude oil output is up 9% Y/Y, which under normal circumstances would blunt OPEC’s efforts to keep supplies low in a bid to goose prices. There is little doubt the U.S. Shale Patch is largely responsible for keeping oil markets well supplied and oil prices low: Rystad Energy has estimated that whereas OPEC and its allies have announced cuts amounting to ~6% of 2022's production, non-OPEC supply has made up for two-thirds of those cuts, with the U.S. accounting for half of that. Thankfully, U.S. output is unlikely to go high enough to put significant pressure on global oil prices.

By Alex Kimani for Oilprice.com


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  • Mamdouh Salameh on September 06 2023 said:
    You are wrong. The rise of Brent crude price to $90 a barrel has nothing to do with Saudi and Russian voluntary production cuts and their extension to the end of the year and everything to do with the robust fundamentals of the global oil market.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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