Crude oil price rises to over $77 a barrel after Saudi output cut

The voluntary cut is on top of a broader deal by Opec and allies, including Russia, to limit supply into 2024.

Consultancy Rystad Energy said the additional Saudi cut is likely to deepen the market deficit in July, which could push prices higher in the coming weeks. File Picture.

Global oil prices rose by more than 1% a barrel after top crude exporter Saudi Arabia pledged to cut production by a further 1m barrels per day from July to counter macroeconomic headwinds that have depressed markets.

Brent crude rose by $1.00 to $77.13 and is now more than 2% higher after the Saudi energy ministry said the kingdom's output would drop to 9m bpd in July from about 10m daily barrels in May. The cut is Saudi Arabia's biggest in years.

The voluntary cut is on top of a broader deal by the Organisation of the Petroleum Exporting Countries (Opec) and allies, including Russia, to limit supply into 2024 as the Opec+ producer group seeks to boost flagging oil prices.

Fatih Birol, head of the International Energy Agency, said that the chance of higher oil prices had increased sharply after the new Opec+ deal. Opec+ pumps about 40% of the world's crude and has cut its output target by a total of 3.66m daily barrels, amounting to 3.6% of global demand.

"The market is still trying to assess the impact of what the Saudi production cut actually means," said Phil Flynn, an analyst at Price Futures Group. 

Oil seems to be taking the news as very bullish, and it is."

SEB analyst Bjarne Schieldrop said the market reaction was relatively muted after the previous cut by Opec+ failed to prop up prices for long.

Consultancy Rystad Energy said the additional Saudi cut is likely to deepen the market deficit to more than 3m bpd in July, which could push prices higher in the coming weeks.

Goldman Sachs analysts said the meeting was "moderately bullish" for oil markets and could boost December 2023 Brent prices by between $1 and $6 a barrel, depending on how long Saudi Arabia maintains output at 9m barrels a day over the next six months.

"The immediate market impact of this Saudi cut is likely lower, as drawing inventories takes time, and the market likely already put some meaningful probability on a cut today," the bank's analysts added.

Reuters