Prices Surge Following Saudi Announcement To Cut Output

Saudi Arabia announced that it is going to cut its crude output an extra 1mbd from July in addition to the 1.6mbd announced by OPEC+ in April and effective from May. 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.

• WTI is up 3.4% to $74.18/bbl at the start of APAC trading with Brent +3.2% to $78.56. They rose 2.5% and 2.9% on Friday. But these rises are unlikely to be sustained if data from China disappoints. The Caixin composite and services PMIs for May print today.
• Brent finished the week down 0.75% at $76.40 but on Wednesday reached a low of $71.50, on demand concerns, especially from China. Earlier in May, the Saudis had warned short sellers to “watch out” and on Sunday they delivered on that. The energy minister said he “will do whatever is necessary to bring stability to this market”.
• The July voluntary cut by Saudi Arabia may be extended but the oil producer can remain flexible with it depending on market stabilisation. The Saudi energy minister said that "This is a Saudi lollipop, … We wanted to ice the cake. We always want to add suspense. We don't want people to try to predict what we do... ".
• The July output reduction will bring Saudi to around 9mbd, lowest since June 2021. But the market is expected to be in deficit in H2 2023.