Crude Oil Prices Soar Amid Saudi Arabia's Planned Supply Cuts

5 Jun 2023 , 08:48 AM

The world’s top exporter Saudi Arabia promised to reduce output by an additional 1 million barrels per day starting in July, reversing market-depressing macroeconomic headwinds. As a result, oil prices increased by more than $1 a barrel on Monday.

Brent oil futures were trading at $77.64 a barrel, up $1.51 (or 2%), from their session high of $78.73.

After reaching an intraday high of $75.06 per barrel, U.S. West Texas Intermediate crude increased $1.41, or 2%, to reach $73.15 per barrel.

As the Saudi oil ministry announced on Sunday that its output would decrease to 9 million barrels per day (bpd) in July from over 10 million bpd in May, the kingdom’s largest cut in years, both contracts maintained gains after jumping more than 2% on Friday.

Saudi Arabia’s voluntary cut comes on top of a larger agreement made by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, to limit supply until 2024 in an effort to revive falling oil prices.

The OPEC+ group produces almost 40% of the world’s petroleum and has pledged to decrease 3.66 million bpd, or 3.6%, of demand worldwide.

The group cut the targets for Russia, Nigeria, and Angola to put them in line with their actual production levels, so many of these reductions won’t have much of an impact.

The United Arab Emirates, on the other hand, were given permission to increase their output targets by about 200,000 bpd, to 3.22 million bpd.

According to Baker Hughes Co.’s weekly report on Friday, the number of working oil rigs in the United States dropped by 15 to 555 last week, the lowest number since April 2022.

Due to lower prices, increased expenses, and corporations shifting spending to shareholder returns, drilling has slowed since December.

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