- Saudi Arabia reduces output by 1 million barrels per day.
- OPEC+ has implemented cuts of 3.66 million barrels per day.
- Market deficit may exceed 3 million barrels per day in July.
U.S. WTI crude oil prices surged over $1 per barrel on Monday following Saudi Arabia’s announcement of an additional production cut of 1 million barrels per day from July onwards. This move by the world’s top oil exporter aims to counteract the macroeconomic challenges that have been weighing on the market. The Saudi energy ministry revealed that the kingdom’s output would decrease to 9 million barrels per day in July, marking its most significant reduction in years and contributing to the recent gains in oil prices.
OPEC+ & Saudi Arabia Cut Oil Production
The voluntary production cut by Saudi Arabia complements the broader agreement made by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, to limit oil supply until 2024. OPEC+ currently accounts for approximately 40% of global crude production and has already implemented cuts of 3.66 million barrels per day, equivalent to 3.6% of global demand.
Saudi’s Surprise Cut Tightens Oil Market
This unexpected decision by Saudi Arabia is likely to create further tightening in the oil market during the second half of the year. Consultancy firm Rystad Energy predicts that the additional production cut by Saudi Arabia will deepen the market deficit to more than 3 million barrels per day in July, potentially driving prices higher in the coming weeks.
Meeting Outcome ‘Moderately Bullish’
Goldman Sachs analysts see the meeting’s outcome as “moderately bullish” for oil markets. They expect that it could potentially increase December 2023 Brent prices by $1 to $6 per barrel. However, the impact of these reductions may be restricted because the group revised targets for countries like Russia, Nigeria, and Angola to match their current production levels. On the other hand, the United Arab Emirates (UAE) was allowed to raise its output targets by approximately 200,000 barrels per day, reaching a total of 3.22 million barrels per day.
US Oil Rig Count Drops
In the United States, operating oil rigs saw a substantial decline last week. The number dropped by 15, reaching a total of 555. This is the lowest count recorded since April 2022. The decrease suggests that drilling activity has slowed due to several factors, including weaker prices, higher costs, and companies prioritizing shareholder repayments over further investments.
Short-Term Outlook: Bullish
Saudi Arabia has committed to additional production cuts. This, along with the potential for a tighter market, suggests a bullish outlook for oil in the short term. Traders and investors should keep a close eye on developments in the coming months. The impact of these measures could unfold and potentially affect oil prices.
WTI Oil is trading on the strong side of $69.97 (PIVOT), making this level new support. A sustained over this level will indicate the presence of buyers. If this creates enough upside momentum then look for the move to possibly extend into $76.28 (R1) over the near-term.
A sustained move under $69.97 (PIVOT) will signal the return of sellers. This move could create the momentum needed to challenge $63.82 (S1).
Resistance & Support Levels
|PIVOT – $69.97||R1 – $76.28|
|S1 – $63.82||R2 – $82.42|
|S2 – $57.52||R3 – $88.73|
This article was originally posted on FX Empire
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