The Brent oil price is holding above the $75 per barrel (bbl) level after rallying on Monday, being pulled two ways by supply cuts and slowing demand. Saudi Arabia announced that it would extend its 1 million barrel per day (bpd) production cut into August. Immediately after that, Russia surprised markets with its announcement that it would impose export restrictions on its crude, with exports expected to fall by 500,000 bbd.
Brent Crude Oil Price, USD per barrel
Source: Trading View
Although there is no OPEC+ production meeting this week, there will be a conference in Vienna this week with speakers including the Saudi Energy Minister Prince Abdulaziz bin Salman, reported to be frustrated that his attempts to raise oil prices have failed so far.
A statement issued by the Saudi Ministry of Energy noted: "This additional voluntary cut comes to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets."
These moves might normally spark a rally in the oil price, but disappointing economic data in the US, Europe and China – notably in manufacturing, which appears to be in recession in many regions – dulled the oil price response.
Production data has yet to reflect cuts. The global oil market has only faced a cumulative 1.1 million bbd less supply this year, after the initial OPEC+ cut in March. Core OPEC production, reported by Bloomberg, was 28.57 million bbd in June, actually an increase of 80,000 bbd versus May.
Saudi Arabia’s unilateral production cut is only a few days old and has yet to show up in production data. There has yet to be a significant reduction in oil exports from Russia after its voluntary 0.5 million bbd production cut announced in February. However, now that Russia plans to cut exports by an equivalent amount, physical oil markets are facing the risk of tightener physical markets in the second half of the year.
Until physical markets begin to see evidence of the tighter supply conditions, and not just announcements, a persistent oil price rally remains unlikely.
Analysis by Harry Altham, Energy Analyst: Harry.Altham@StoneX.com
Edited by Paul Walton, Financial Writer: Paul.Walton@StoneX.com