Brent gains after top oil producers extend supply cuts through the end of 2023

The front-month ICE Brent contract has gained $0.83/bbl on the day, to trade at $89.28/bbl at 09.00 GMT.

PHOTO: The flags of Russia and Saudi Arabia behind a barrel of oil. Getty Images

Upward pressure:

Brent futures broke above $90/bbl for the first time since November 2022, after leading oil producers Saudi Arabia and Russia announced the extension of voluntary oil supply cuts through the end of the year.

The Organization of the Petroleum Exporting Countries’ (OPEC) de facto leader Saudi Arabia said it will implement a voluntary output cut of 1 million b/d through the end of 2023, state news agency SPA reported on Tuesday, citing a ministry official.

The announcement was followed by a statement from Russian Deputy Prime Minister Alexander Novak, who announced an extension of Russia's export cuts by 300,000 b/d through the end of this year.

Oil market analysts were expecting the oil-producer duo to extend production cuts into October, rather than an extension till the end of 2023.

“This move [extension of production cuts] underscores their [Saudi Arabia and Russia] heightened pricing influence within the OPEC+ alliance,” commented SPI Asset Management’s managing partner Stephen Innes. “The market's anticipation of this development led to a notable 2-3% surge in Brent crude oil prices, reaching $91 per barrel,” he further added in a note.

Downward pressure:

The surge in Brent futures amid the extension of voluntary output cuts could “prove challenging for central banks and financial markets, which were embellishing the current lower inflation groove,” said Innes.

Higher oil prices could lead to another round of interest rate hike by the US Federal Reserve (Fed) in an effort to battle inflationary pressure.

A higher interest rate could reduce consumer spending and drive oil demand down.

“Rising oil prices are officially the new inflation stoker. Everyone notices that this rally feels different, suggesting that "Oil," The Great Inflationary Dragon, is not yet slain,” Innes further added.

By Aparupa Mazumder

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