Oil Prices Surge to 10-Month High as Saudi Arabia and Russia Extend Production Cuts, Sparking Concerns of Winter Shortages

Oil Prices Surge to 10-Month High as Saudi Arabia and Russia Extend Production Cuts

On September 5, 2023, Brent crude futures settled above $90 per barrel for the first time since November 2022, marking an important turning point for oil prices. Saudi Arabia and Russia unexpectedly announced that they will broaden their voluntary production cuts of 1.3 million barrels of oil per day to the end of the year, causing worries about possible shortages during peak winter need. This surprise statement caused oil prices to spike.

Major highlights

To reach a settlement price of $90.04 per barrel, Brent crude futures increased by $1.04, or 1.2%.

West Texas Intermediate (WTI) crude futures in the United States increased $1.14, or 1.3%, to close at $86.69 a barrel, also setting a 10-month high

Investors were unprepared for Saudi Arabia and Russia’s three-month extension of its production curbs, which dramatically constrained the world oil markets.

Both nations committed to reviewing supply restrictions each month and revising them as needed to reflect changes in the market.

In the fourth quarter of 2023, UBS analysts forecast a market deficit of another 1.5 million barrels a day, including Brent oil prices rising to $95 per barrel by year’s end.

According to a representative of the Energy Ministry, Saudi Arabia’s further voluntary cut seeks to support the balance and stability of the oil markets.

Background:

Uncertainty has been exacerbated by worries about China’s economic development and growing demand for crude, which is approaching near-record prices. The benchmark crude, Brent, increased 1.4% to $90.25 a barrel. This action exceeded market expectations and represented a major deviation from the $75–$85 per barrel pricing range that had been in effect since late October.

Domestic crude oil futures that had a September 19 expiration traded 1.07% higher at ₹7,185 per barrel on the Multi Commodity Exchange (MCX). This change was a reaction to the worldwide increase in oil costs.

Outlook:

Saudi Arabia and Russia’s decision to prolong their production curbs demonstrates their commitment to bringing oil markets under control. However, given the rising demand, the effect on energy prices globally and the broader economy will be keenly watched. The suddenness of this choice emphasizes the complexity of the variables affecting the oil market plus the likelihood of more price volatility.

Article By Deby T

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