Brent gains as Saudi Arabia output cut comes into effect

The front-month ICE Brent contract has gained $0.84/bbl on the day from Friday, to $76.03/bbl at 09.00 GMT.

PHOTO: A pump jack against the OPEC flag. Getty Images

Upward pressure:

Brent futures were supported by the onset of 1 million b/d output cut, pledged by Saudi Arabia along with a broader OPEC+ commitment to reduce supply into 2024, earlier in June.

Oil prices gained more after Saudi Arabia announced an extension of its voluntary production cut by one month to include August. The country is estimated to produce 9 million b/d of crude oil in August, Saudi Press Agency reports.

Moreover, a sharp fall in US oil inventories and signs of strengthening of the US economy lent more support to Brent futures. The US Energy Information Administration (EIA) reported that crude inventories in the US dropped by 9.6 million bbls last week.

Downward pressure:

The ongoing interest rate hiking cycles by major central banks around the world have dented global oil demand.

Recently, the US Federal Reserve’s chairman Jerome Powell hinted at two more rate hikes by the end of this year. “The Fed has been a major hurdle as the historic rate hiking cycle has lowered oil demand expectations and has kept a lid on prices,” said the Price Futures Group’s senior analyst Phil Flynn.

The peak summer driving season in the US is supposed to boost demand but travel plans are getting impacted as more than a third of the US population are under air quality alerts, Phil Flynn further noted. “The Canadian wildfire smoke is having the biggest impact from the Midwest to the East Coast,” the analyst added in the note.

By Aparupa Mazumder 

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