Oil Prices Rise as Saudi Arabia and Russia Commit to Output Cuts

Top Exporters Pledge to Keep Supply Tight

Oil prices have seen a slight increase on Monday following the announcement by Saudi Arabia and Russia that they will continue their voluntary oil output cuts until the end of the year. This commitment to keeping supply tight has boosted investor confidence, although attention is also focused on potential U.S. sanctions on Iranian oil.

Positive Movement in Oil Futures

Futures for oil rose by 0.65% to $85.44 a barrel, while U.S. West Texas Intermediate crude increased by 0.78% to $81.14 a barrel. These positive movements indicate optimism in the market.

Saudi Arabia’s Additional Voluntary Cut

In line with analysts’ expectations, Saudi Arabia confirmed that it will continue its additional voluntary cut of 1 million barrels per day (bpd) in December. This decision will help maintain output at around 9 million bpd, as stated by a source at the Ministry of Energy.

Russia’s Continued Supply Cut

Russia has also announced that it will maintain its additional voluntary supply cut of 300,000 bpd until the end of December. This commitment is expected to contribute to the balance of the oil market in the first quarter of next year.

Market Surplus Expected in Early 2023

ING analysts predict that the oil market will experience a surplus in the first quarter of next year. However, they believe this may not be sufficient to convince Saudi Arabia and Russia to discontinue their cuts.

Geopolitical Risk and Economic Data

The geopolitical risk premium has faded in recent weeks, as U.S. diplomats have been working to limit the potential for wider conflict in the Middle East. However, analysts caution that the market is not fully pricing in geopolitical risks at current levels.

Investors are also closely monitoring economic data from China, the world’s second-largest oil consumer. Disappointing October factory data has raised concerns about the country’s oil demand.

Technical Analysis and Price Support

Technical charts and headlines from the Middle East are expected to drive oil prices this week. Analysts emphasize the importance of WTI holding above the $80 support level to avoid a potential drop to the August low of $77.59.

Brent, on the other hand, is expected to stay supported within the range of $80-85 a barrel. Factors influencing this include the ongoing supply cuts, the end of rate hikes, and a falling U.S. dollar.

Potential Impact of Sanctions on Iranian Oil

The U.S. House of Representatives recently passed a bill that would strengthen sanctions on Iranian oil. The effects of this potential law on Iran’s oil exports are still being closely monitored. It is possible that waivers and continued imports by China could mitigate the impact.

Decline in U.S. Oil Rigs

Last week, the number of oil rigs in the United States fell to 496, the lowest level since January 2022. This decline indicates a potential decrease in oil production in the country.

Overall, the commitment of Saudi Arabia and Russia to maintaining output cuts has provided a boost to oil prices. However, the market remains sensitive to geopolitical risks and economic data. Investors will continue to monitor the situation closely.