Oil rose Monday after top exporters Saudi Arabia and Russia announced supply cuts for August, overshadowing concern over a global economic slowdown and the potential for further increases to U.S. interest rates.
Saudi Arabia on Monday said it would extend its voluntary cut of 1 million barrels per day (bpd) for another month to include August, the state news agency said.
Shortly after the Saudi announcement, Russian Deputy Prime Minister Alexander Novak said Moscow would reduce its oil exports by 500,000 barrels per day in August, further tightening global supplies.
The moves are seen as the latest attempts by major producers to stabilize markets rocked by factors, including continued fallout from the Russian invasion of Ukraine and China's faltering economic recovery.
The cut by Saudi Arabia, the world's biggest crude exporter, was first announced after a June meeting of oil producers and took effect at the weekend.
Saudi Energy Minister Prince Abdulaziz bin Salman Al Saud noted at the time that it was "extendable."
In a report on Monday announcing that the cut would continue through August, the official Saudi Press Agency (SPA) said it "can be extended" further, citing an Energy Ministry source.
"The source confirmed that this additional voluntary cut reinforces the precautionary efforts made by OPEC+ countries to support the stability and balance of oil markets," SPA said.
Monday's extension announcement leaves the kingdom's production at approximately 9 million bpd.
Russia's move came "as part of efforts to ensure that the oil market remains balanced."
The announcement by Novak, in charge of Russia's energy policy, came on the back of cuts to the country's oil production this year by the same volume as part of Moscow's response to Western sanctions levied over the conflict in Ukraine.
The cuts amount to 1.5% of global supply and bring the total pledged by OPEC+, which groups the Organization of the Petroleum Exporting Countries and allies led by Russia, to 5.16 million bpd.
OPEC+ already has cuts of 3.66 million bpd, amounting to 3.6% of global demand, including 2 million bpd agreed last year and voluntary reductions of 1.66 million bpd agreed in April and extended to December 2024.
"Saudi Arabia is hoping to bring down global inventories over the summer to support prices," said Jamie Ingram, senior editor at MEES.
"There will be little expectation that Russia will fully comply with this latest commitment, but the key thing here is that it's a public statement of commitment to Saudi Arabia's market management strategy."
Brent crude futures were up $1.04 at $76.45 a barrel by 9:42 a.m. GMT after gaining 0.8% on Friday. U.S. West Texas Intermediate crude rose 97 cents to $71.61, gaining 1.1% in the previous session.
"Investors are turning upbeat as the second half of the year kicks off; they expect tighter oil balance and buoyant equities also suggest that recession will be avoided, albeit probably narrowly," said PVM analyst Tamas Varga.
Prices had fallen earlier in the session after eurozone manufacturing activity contracted faster than initially expected in June, with persistent policy tightening by the European Central Bank (ECB) squeezing finances.
Fears of a further economic slowdown denting fuel demand had grown on Friday as U.S. inflation continued to outpace the central bank's 2% target and stoked expectations it would raise interest rates again.
Higher interest rates could strengthen the dollar, making commodities like oil more expensive for buyers holding other currencies.
Factory activity growth in China, the world's largest crude importer, also slowed in June as sentiment and recruitment cooled in sluggish market conditions, the Caixin/S&P Global private sector survey showed.
Recent efforts by OPEC+ to bolster prices by reducing output have not succeeded.
In April, several OPEC+ members opted to slash production voluntarily by more than one million bpd – a surprise move that briefly raised prices but failed to bring about lasting recovery.
Brent is down some 11% since the beginning of the year and WTI is down 7%, as a sluggish recovery in China and worries about the U.S. economy weighs on demand forecasts.
"Futures prices point to expectations of a well-supplied market," Ingram said.
The average price of Russian Urals was $52.17 per barrel during the first half of 2023, down from $84.09 during the same period last year, the Russian Finance Ministry said Monday.
That drop reflects the effects of a price cap imposed in December by a coalition involving the Group of Seven (G-7) leading economies, the European Union and Australia.
Saudi Arabia is counting on high oil prices to fund an ambitious reform agenda that could shift its economy from fossil fuels.
Oil giant Saudi Aramco, the jewel of the kingdom's economy, said it recorded profits totaling $161.1 billion last year, allowing Riyadh to notch up its first annual budget surplus in nearly a decade.
Analysts say the kingdom needs oil to be priced at $80 per barrel to balance its budget, which is well above recent averages.
