ALBAWABA – Oil prices rose on Wednesday on supply concerns, having gained more than 1 percent in the previous session, after Saudi Arabia and Russia extended their supply cuts to the end of the year.
Brent crude futures rose by $0.14 to $90.18 a barrel at 0215 GMT, according to Reuters, and West Texas Intermediate crude (WTI) futures gained $0.12 cents to settle at $86.81 a barrel.
Investors had expected Saudi Arabia and Russia to extend their voluntary cuts into October, but the three-month extension was unexpected, Reuters confirmed.
"These bullish moves significantly tighten the global oil market and can only result in one thing: higher oil prices worldwide," Jorge Leon, senior vice president at consultancy Rystad Energy, said in a note.
Oil prices rallied this quarter after the Organization of Petroleum Exporting Countries and its allies (OPEC+) adopted group-wide supply cuts that were then supplemented by additional, voluntary reductions.
The production restraints have been implemented just as the International Energy Agency estimated that global crude consumption is running at a record pace, Bloomberg reported.
Oil prices rise on tighter supply concerns
Reflecting supply concerns in the near-term, the front-month Brent futures traded near 9-month highs at $4.10 a barrel above prices in six months. As for WTI futures, the spread between front-month and the six-month contract widened to as much as $4.47 a barrel on Wednesday, also hovering near 9-month highs.
Saudi Arabia announced extending its 1 million barrels per day output cut until the end of the year - Shutterstock
Rystad estimated global liquids demand will surpass supply by around 2.7 million bpd in the next quarter, as reported by Reuters.
Saudi Arabia will extend its output cut of 1 million barrels per day (bpd) for another three months until the end of December 2023, state news agency SPA said on Tuesday, citing an energy ministry official.
Meanwhile, Russia extended its voluntary oil exports cut by 300,000 bpd to the end of this year, Deputy Prime Minister Alexander Novak said in a statement also on Tuesday.
Higher oil prices could trigger higher interest rates
The impact these cuts will have on inflation and economic policy in the West is hard to predict, but higher oil prices will only increase the likelihood of more fiscal tightening, especially in the United States (US), to curtail inflation, Leon added.
"The decision to prolong output cuts underscores their dedication to price stability in a challenging market environment," Sugandha Sachdeva, executive director and chief strategist at Acme Investment Advisors, told Reuters.
Sachdeva, however, added that the annual refinery maintenance period in the US from September to October could limit demand for crude and potentially act as a restraining factor on rising oil prices.
