Brent gains momentum after Saudi Arabia and Russia pledge more supply cuts

The front-month ICE Brent contract has gained $2.48/bbl on the day, to $85.44/bbl at 09.00 GMT.

PHOTO: Oil pump jack and flag of OPEC. Getty Images

Upward pressure:

Brent futures gained after the world's two major crude oil producers, Saudi Arabia and Russia, announced further supply cuts into September, according to their state media agencies.

Saudi Arabia will be extending its voluntary output cut of 1 million b/d into September, its state media agency Saudi Press Agency (SPA) said on Thursday, citing an official source from the kingdom’s Ministry of Energy. Saudi Arabia's production in September will be about 9 million b/d, SPA reported, citing the official source.

Additionally, Russian Deputy Prime Minister Alexander Novak said that Russia will continue output cuts for another month, including September as well. Russia’s state media agency TASS reported that the country will reduce oil output by 300,000 b/d in September to “balance the market”.

“The amount by which Russia reduces its oil production as promised will significantly impact the size of deficits in the upcoming months and where prices will settle,” said SPI Asset Management’s market analyst Stephen Innes.

The market is now waiting for minutes from the oil-producer countries’ joint ministerial monitoring committee meeting scheduled later today.

Downward pressure:

Brent felt some downward pressure this week after the ratings agency Fitch downgraded the main US credit rating to ‘AA+’ from ‘AAA’. Fitch said that the downgrade was due to the US government's “repeated debt limit and political standoffs”.

Anticipation of further interest rate hikes by the US Federal Reserve (Fed) also added to the downward pressure on Brent. Higher interest rates can lead to sluggish economic growth and affect US and global oil demand.

"A strong dollar has weighed on crude prices and everyone wants to know if a hot labor market will force the Fed to tighten policy even further," said Ed Moya, OANDA’s market analyst.

By Aparupa Mazumder

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