Oil Prices Surge as Saudi Arabia and Russia Extend Supply Cuts through December 2023

In a significant development, oil prices surged by more than 1% following the joint announcement by Saudi Arabia and Russia to extend their voluntary supply cuts. This extension, totaling 1.3 million barrels per day (bpd), will remain in effect for an additional three months, taking it through December.

As a result of this news, Brent crude futures for November saw a notable increase of $1.21, approximately 1.4%, reaching $90.21 a barrel by 1353 GMT. This marks the first time Brent has breached the $90 level since November of the previous year.

Simultaneously, U.S. West Texas Intermediate crude (WTI) October futures experienced a rise of $1.59, approximately 1.9%, reaching $87.14 a barrel.

Saudi Arabia’s decision to extend its voluntary cut of 1 million bpd will undergo monthly reviews to assess the possibility of deepening the cut or increasing production, as reported by the state news agency SPA.

Russia, a fellow member of the OPEC+ alliance, also confirmed an extension of its voluntary cuts until the end of the year. Deputy Prime Minister Alexander Novak emphasized that this decision aimed to maintain stability and balance in the oil markets. Russia will reduce its exports by 300,000 bpd during this period, aligning with its previous reductions in output and exports alongside Saudi Arabia.

While it was expected that Saudi Arabia would extend its voluntary cuts into October and Russia would continue its reduction through the next month, the unexpected three-month extension reflects an effort to bolster the recent price gains.

Craig Erlam, an analyst at OANDA, noted, “It would appear they’re trying to double down and capitalize on the recent price moves, putting a big buffer in place for when the cuts end.”

Brent, the benchmark used for pricing the majority of the world’s traded oil, has been on the rise since late June when Saudi Arabia initially announced its voluntary cuts. The premium of the front-month Brent contract to the six-month contract reached over $4 a barrel on Tuesday, the highest level since November 2022. This market structure, known as backwardation, indicates tightening supply for immediate delivery.

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