Oil prices ticked higher on Tuesday as markets weighed August supply cuts by top exporters Saudi Arabia and Russia against a weak global economic outlook.
Saudi Arabia on Monday said it would extend its voluntary output cut of 1 million barrels per day (bpd) to August while Russia and Algeria volunteered to lower their August output and export levels by 500,000 bpd and 20,000 bpd respectively.
If fully implemented, that would bring a combined reduction of 5.36 million bpd from August 2022 – possibly even more because several countries in the OPEC+ producer group are unable to fulfil their output quotas, said PVM analyst Tamas Varga.
The total cuts now stand at more than 5 million bpd, or 5% of global oil output.
On Tuesday Brent crude futures were up $1.09, or about 1.5%, at $75.74 a barrel by 1328 GMT. U.S. West Texas Intermediate crude was up $1.07, or 1.5%, at $70.86.
However, oil benchmarks settled about 1% down in the previous session as a gloomy macroeconomic outlook served to erase early gains.
Tuesday morning trade suggests little has changed in oil dynamics despite Monday’s announcements, said OANDA analyst Craig Erlam. “Only a significant break above $77 will suggest something has changed; otherwise range-bound trade could well continue.”
Business surveys have shown a slump in global factory activity because of sluggish demand in China and Europe, and U.S. manufacturing also fell further in June to levels last registered in the first wave of the COVID-19 pandemic.
This broader uncertainty is likely to overshadow OPEC+ efforts to tighten supply, some analysts said.
Even before the latest cut announcements, International Energy Agency (IEA) data suggested the oil market was set to show a supply deficit of roughly 2 million bpd in the third and fourth quarters, Commerzbank analysts said.
Oil prices did not jump significantly on the news, largely because of demand concerns resulting from China’s sluggish economic recovery after the lifting of pandemic restrictions. Meanwhile, interest rates in the U.S. and Europe are expected to rise further to address stubbornly persistently high inflation, the analysts said.
U.S. markets were closed on Tuesday for the July 4 holiday.