International oil prices rebounded overnight, with U.S. oil surging more than 2.2% and Brent crude reaching its highest in nearly two weeks.
This upswing is largely due to new supply restrictions announced by the two major OPEC+ oil-producing nations, Saudi Arabia and Russia, lending support to rising oil prices.
Saudi Arabia and Russia are cutting production together. Starting in July, Saudi Arabia will voluntarily reduce its additional production by 1 million barrels per day for one month until August. Russia will reduce its oil exports by 500,000 barrels per day in August. Adding this to the previously announced production cuts, the total supply reduction reaches 3.1 million barrels per day, accounting for around 3% of global consumption.
However, Asian powerhouses are not buying into this strategy. Asian refiners, responsible for meeting one-third of the world's fuel consumption, noted that there is ample crude oil supply from producers outside OPEC+, particularly from the United States, West Africa, and the North Sea region. If these two major oil-producing nations' cuts prevent them from obtaining crude oil, they will turn elsewhere for purchases.
It's worth mentioning that over the past month, the price gap between Brent crude and Saudi oil has significantly narrowed, suggesting that Brent-linked crude oil may become more attractive. Lower transportation costs have also reduced the overall import costs of long-distance transportation from the Atlantic. There are already signs of steadily increasing demand for West African crude oil in Asia.
Analysts point out that for Middle Eastern oil-producing countries, the inflow of crude oil from places like the United States to Asia sends mixed signals. On one hand, it may help reduce crude oil supplies in the United States and Europe, which hold the world's largest crude oil futures contracts. On the other hand, they risk losing their share in Asia, the market with the fastest growth in demand.
So far, the production cuts by OPEC+ have failed to make any meaningful impact on overall oil prices. Oil prices have been lingering between $70 and $80 per barrel for several weeks. However, the prices of crude oil of a similar grade to Saudi oil rose more vigorously last week, exceeding the price of Brent crude oil.
In the coming days, Saudi Arabia will announce its official sales prices for crude oil in different regions of the world. These figures are often closely related to other oil-producing countries around Saudi Arabia and could be critical in determining demand in different regions.
Before Saudi Arabia's most recent production cut, traders estimated that the price of crude oil shipped from Saudi Arabia in August would remain unchanged. Many traders stated that they think the current oil price is relatively high. They further indicated that if Saudi Arabia intends to tighten supply, they anticipate an increase in oil prices.
