Oil Prices Surge as Markets Anticipate Potential OPEC+ Production Cuts

2 Jun 2023 , 10:35 AM

As markets evaluated the potential of price-supportive OPEC+ production cuts over the weekend despite good mood over U.S. monetary policy and Washington’s debt ceiling deal, oil prices increased on Friday in early Asian trade.

Following two continuous days of falling petroleum prices, Brent crude futures increased by 13 cents, or 0.18%, to $74.41 a barrel, while U.S. West Texas Intermediate crude (WTI) increased by 15 cents, or 0.21%, to $70.25 a barrel.

The Federal Reserve’s anticipated pause in rate increases and the House of Representatives ratification of a bill delaying the U.S. government’s debt ceiling, which is likely preventing a catastrophic sovereign default, gave the markets comfort.

The Federal Reserve’s anticipated pause in rate increases and the House of Representatives ratification of a bill delaying the U.S. government’s debt ceiling, which is likely preventing a catastrophic sovereign default, gave the markets comfort.

The Senate will continue to meet into Thursday night U.S. time in order to pass the U.S. debt ceiling bill, according to Democratic Majority Leader Chuck Schumer.

The Energy Information Administration’s data on U.S. crude stocks released on Thursday, which showed that crude imports had increased over the previous week, also helped to boost market sentiment.

The Organisation of the Petroleum Exporting Countries and its allies, including Russia, will convene on June 4 and is currently the focus of investor attention.

Ministers from major oil-producing nations will make the decision over whether to further reduce output to support tax income.

Further cuts in OPEC+ production after their unexpected 1.16 million barrel per day decrease in April would boost crude prices.

Reuters said and experts from banks including HSBC and Goldman Sachs indicated that further output cuts are unlikely and that the EU will take a ‘wait and see’ approach regarding any such drop. Signals on any such cut have been mixed.

Other market watchers have said that the case for OPEC+ reduction is supported by the dismal manufacturing statistics coming out of China and the United States.

The Institute for Supply Management (ISM) in the United States said on Thursday that its manufacturing PMI decreased to 46.9 from 47.1 in April. This is the seventh consecutive month that the PMI has been below the 50-point mark, signaling a decline in manufacturing activity in the country that is the world’s top oil consumer.

The Caixin/S&P Global China manufacturing PMI, which came in higher than predicted on Thursday, contrasted with official government data released the day before, which showed that factory activity fell to its lowest level in five months in May.

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