Oil prices increase as production reductions boost the market

8 Aug 2023 , 10:28 AM

Early on Tuesday, oil prices increased as the market was underpinned by supply fears brought on by Saudi Arabia and Russia’s production curbs.

Brent crude futures were up 37 cents, or 0.4%, to $85.71 a barrel, while U.S. West Texas Intermediate crude was up 43 cents, or 0.5%, to $82.37 per barrel.

Investors anticipated for weaker demand from the world’s two largest economies, China and the United States, and both contracts ended the previous trading session approximately 1% down.

The leading exporter of oil, Saudi Arabia, announced that it would prolong a voluntary production cut of one million barrels per day for one more month, through September. It also warned that it might extend the cut beyond that date or further reduce production beyond September.

Additionally, Russia declared that it would reduce daily oil exports by 300,000 barrels in September.

Saudi Arabia may be aiming for a price higher than $80 per barrel, as evidenced by its decision to extend output curbs until September despite Brent futures prices going over that level.

After a rally sparked by Saudi Arabia’s decision to prolong its voluntary production reduction into September, an OPEC+ ministerial panel convened on Friday but decided not to alter the group’s present policy on oil output.

OPEC+ reached a comprehensive agreement to restrict output through 2024 at its most recent policy meeting in June. The agreement extended and tightened restrictions beginning in January 2024 by an additional 1.4 million barrels per day, maintaining 2023 oil output limits of 3.66 million barrels per day.

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