In the face of dismal market sentiment, major oil producers Saudi Arabia and Russia are once again joining forces to support oil prices.
The Saudi state news agency reported Monday local time that the Saudi Energy Ministry announced it would extend its voluntary production cuts through August, confirming earlier media reports.
Saudi Arabia said the additional voluntary cuts aim to reinforce OPEC+'s preventative measures, with the goal of supporting the stability and balance of the oil market.
In early June, Saudi Arabia surprisingly announced it would reduce production by an additional one million barrels per day in July, the country's most significant cut in years. This move brought its production down to nine million barrels per day, the lowest level since June 2021.
On the same day, Russian Deputy Prime Minister Novak announced Russia would reduce its daily oil exports by 500,000 barrels in August. According to his latest statement, Russia also plans to further reduce crude oil production by 500,000 barrels per day in August.
Earlier this year, Russia announced it would cut oil production by 500,000 barrels per day based on the average extraction level in February. This decision has now been extended through the end of the year.
Following these announcements, oil prices soared rapidly. Brent crude oil rose by 0.85% on the day, trading at $76.05 per barrel.
WTI crude oil increased by 0.92%, currently priced at $71.29 per barrel.
However, as Saudi Arabia and Russia jointly reduce supply, the market is betting on a further drop in oil prices. A key market indicator shows traders believe supply will not decrease in the coming months.
In recent days, Brent crude oil contracts due for extension have shown a futures premium compared to those due for delivery. This is a sign that the market believes supply can meet demand.
Amid pessimistic demand prospects, oil prices have remained low for several months. With Germany's weak economy and potential recession in the U.S., the World Bank predicted last month that global economic growth will slow in the second half of the year.
Furthermore, Wall Street banks like Goldman Sachs and Morgan Stanley have previously abandoned predictions of oil prices rebounding to $100 per barrel.
However, some remain optimistic about oil prices in the second half of the year. PVM analyst Tamas Varga indicated:
Heading into the second half of the year, investors are becoming optimistic; they anticipate a tightening oil balance and rising stock markets, suggesting that the economy will avoid recession, although it may only narrowly avoid it.
