Crude Gives Up Most Of Early Gains Following Saudi Output Cut

Oil started Monday trading strongly higher following the surprise announcement that Saudi Arabia would reduce its output by an additional 1mbd from July in addition to the 1.6mbd announced by OPEC+ in April. The move should provide a floor to prices, unless economic data deteriorates more than expected. Brent reached an intraday high of $78.73/bbl earlier but has given up a lot of those gains and is now trading around $77.11, up 1.3% from Friday’s NY close. WTI is +1.4% to $72.75 after a high of $75.06. The USD index is 0.1% higher.

• China’s Caixin services PMI for May rose to 57.1, stronger than expected, from 56.4. Manufacturing also rose and the composite now stands at 55.6 up from 53.6, thus providing some optimism for China’s oil demand.
• The July voluntary cut by Saudi Arabia may be extended or deepened as the oil producer can remain flexible depending on market stabilisation. There was a long debate on quotas and the rest of the group, including Russia, didn’t follow but did confirm that they would extend the existing cuts through 2024. In contrast, UAE will increase production next year covered by unused quotas from African members.
• The Fed’s Mester (non-voting) gives welcome remarks later and ECB President Lagarde also speaks. Services PMIs/ISM for May are released.