Oil prices steady as global economic worries offset supply cuts

Opec+ will continue pursuing efforts to stabilise the oil market and will do 'whatever is necessary', Saudi Energy Minister says at Opec seminar in Vienna

Oil pipelines in Alberta, Canada. The price of Brent has dropped almost 12 per cent since the beginning of the year. Reuters

Oil prices stabilised on Wednesday after trading lower during the midday session and following a sharp rise on Tuesday after Saudi Arabia and Russia announced output cuts for August.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.29 per cent higher at $76.47 a barrel at 7.28pm UAE time after falling more than $1 in early trade.

West Texas Intermediate, the gauge that tracks US crude, rose 2.78 per cent to $71.73 from Monday's close after trading through the US Independence Day holiday without a settlement.

Crude prices have dropped almost 12 per cent this year as China’s economic recovery loses momentum and as continued interest rate increases in the US and Europe threaten to stifle economic growth and energy demand.

China’s services sector showed signs of softening growth in June, according to the latest PMI data released on Wednesday.

Business activity and new orders both expanded at notably slower rates than in May, underscoring concerns over the tepid recovery in the world’s second-largest economy and the world’s biggest oil importer.

Opec will continue pursuing efforts to stabilise the oil market and will do “whatever is necessary”, Saudi Energy Minister Prince Abdulaziz bin Salman said at the Opec International Seminar in Vienna on Wednesday.

He said the market would not be left “unattended” and that the output policy announced on June 4 was “too big for people to comprehend”.

His remarks come after the world’s largest oil exporter said it would extend its voluntary production cut of a million barrels per day, which was initially announced for July, for another month.

Saudi Arabia, the world’s largest oil exporter, on Monday said it will extend its production cut of one million barrels per day, which was initially announced for July, for another month.

The kingdom’s production for August will be about nine million bpd and “this additional voluntary cut comes to reinforce the precautionary efforts made by Opec countries with the aim of supporting the stability and balance of oil markets”, the Saudi Press Agency reported.

Russia is also cutting its oil supplies by 500,000 bpd in August on top of the output reductions that have already been announced, state news agency Tass reported on Monday.

Sluggish demand in US, China and Europe are however weighing over investor sentiment. US manufacturing activity slumped further in June, reaching levels last seen in April 2020.

The ISM’s manufacturing PMI fell to 46.0 last month, down from 46.9 in May. The PMI remained below 50 for the eighth consecutive month, indicating contraction in the sector.

Factory activity growth in China, the world’s second largest economy and top crude importer, slowed in June.

The Caixin/S&P Global manufacturing purchasing managers' index eased to 50.5 last month from 50.9 in May. The 50-point index mark separates expansion from contraction.

After rising at the quickest rate in 11 months in May, Chinese manufacturing output expanded only slightly in June.

In April 2020, the Opec alliance of 23 oil-producing countries announced its largest production cut yet, 9.7 million bpd, as Covid-19 lockdowns hit global fuel demand and took Brent crude below $30 a barrel.

The Saudi and Russian announcements triggered concerns of a supply crunch that sent oil prices higher, Singapore-based oil markets consultancy Vanda Insights said in a research note.

However, traders are now taking stock of the situation, which has “prompted some profit-taking”.

“Many market participants would be sceptical of the gains notched in the North Sea benchmark in the previous session amid low trading volumes due to a public holiday in the US.”

Last month, Opec agreed to stick to its existing output cuts until the end of 2024.

The group has total production curbs of 3.66 million bpd, or about 3.7 per cent of global demand, in place, including a two million bpd reduction agreed last year and voluntary cuts of 1.66 million bpd announced in April.