Oil prices are expected to rise for a sixth consecutive week as producers promise to reduce output

4 Aug 2023 , 09:59 AM

After the second- and third-largest crude producers in the world, Saudi Arabia and Russia, agreed to reduce output through next month, oil prices jumped for a second day on Friday and are on pace for their sixth week of rises.

October Brent crude futures were up 30 cents, or 0.4%, to $85.44 per barrel, while September West Texas Intermediate crude was up 36 cents, or 0.4%, to $81.90.

While WTI was expected to end the week 1.4% higher after U.S. oil stocks dropped by the highest ever on Wednesday, Brent on Thursday recovered from a 2% decline in the Wednesday meeting, leaving futures on track for a 0.4% weekly gain.

Both benchmarks remained on track for their longest run of consecutive weekly increases this year—a sixth week of gains.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, are known as OPEC+, and their ministerial meeting is scheduled for the day before Saudi Arabia announced on Thursday that it would extend a voluntary oil production cut of 1 million barrels per day (bpd) for another month, to include September.

According to reports, it is doubtful that the Joint Ministerial Monitoring Committee of OPEC+ will change its overall policy regarding oil supply during its meeting on Friday. However, fears about supply have been heightened and prices have been bolstered by the Saudi Arabian commitment and remarks from Russian Deputy Prime Minister Alexander Novak that his country will also reduce its oil exports by 300,000 bpd in September.

At its most recent policy meeting in June, OPEC+ reached a broad agreement to restrict supplies through 2024, and at that time Saudi Arabia committed to voluntarily reduce more production for July before extending it to August.

White House national security spokesperson John Kirby stated that following the Saudi Arabian decision, the United States would keep collaborating with producers and consumers to make sure the energy market fosters development. The world’s largest oil producer is the United States.

The most recent batch of US economic data, which shows tight labour markets and a sluggish service sector, has the market concerned about demand despite the supply reductions.

The Bank of England increased its benchmark interest rate by a quarter of a percentage point to a 15-year high on Thursday and issued a warning that borrowing rates would likely remain high for some time. The decline in euro zone corporate activity also worsened more than initially anticipated in July.

Higher borrowing prices for households and businesses might stymie economic expansion and lower demand for oil.

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