VINACHEM

Oil prices rose by more than $2/bbl in early trade on Monday following a pledge by Saudi Arabia – the world’s largest crude exporter – to cut its production by another 1m bbl/day in July.

At 2:46 GMT, oil prices were off highs, with Brent crude near $77/bbl  and US crude at above $72/bbl.

($/bbl) Contract    Low         High          Open         Last (at 02:46 GMT 5 June) Previous Settlement Change     High    Change
Brent      Aug       76.62      78.73           77.68        76.82                                                                       76.13        0.69       2.6
WTI       July        72.25      75.06           75.03        72.5                                                                         71.74        0.76       3.32

Concerns about slowing global energy demand amid recessionary pressures continue to weigh down on oil markets.

Oil prices had fallen over the last 10 months despite attempts by OPEC to cut supplies, with demand concerns amplified by continued economic weakness in China, which is the world’s largest importer.

Saudi Arabia will reduce its output to 9m bbl/day in July from about 10m bbl/day in May, its largest cut in years, the country’s Ministry of Energy said in a statement.

“As a precautionary measure, the Kingdom of Saudi Arabia will extend its voluntary cut of 500,000 bbl/day until the end of December 2024, in coordination with some countries participating in the OPEC+ agreement,” the ministry said.

Oil cartel OPEC and its allies, collectively known as OPEC+, refer to a group of 23 oil-exporting countries including Russia.

Saudi Arabia is the largest producer within OPEC, which has 13 core members whose production account for about 40% of the world’s crude oil, with exports making up around 60% of global petroleum trade, according to the World Economic Forum.

According to estimates from the International Monetary Fund (IMF), Saudi Arabia needs oil prices to be above $80/bbl to balance its budget.

“This voluntary reduction from the required production level as agreed upon at the thirty-fifth ministerial meeting of OPEC Plus on 4 June,” the Saudi energy ministry stated.

OPEC+ on 4 June agreed to reduce overall production targets from January 2024 by a further 1.4m bbl/day, on top of current output cuts.

In April this year, the group had announced voluntary cuts of 1.66m bbl/day, adding to the 2m bbl/day cuts agreed on last year.

The group decided to extend the total of 3.66m bbl/day of cuts until the end of 2024 from a previous deadline of the end of 2023.

US DEBT CEILING DEAL PROVIDE SUPPORT
Oil prices were also extending their rally as the US avoided a debt default with the passage of a bill suspending its debt ceiling into law a few days before the 5 June deadline.

US President Joe Biden signed on 3 June the debt-ceiling deal – which limits federal spending for two years in return for a suspension of the debt ceiling through the 2024 US election – into law over the weekend.

The bill sailed through the US House of Representatives on 31 May and the Senate on 1 June.

Further signs that the US Federal Reserve will pause the trend of interest rate hikes for the time being also supported oil prices as it has capped the rise in the US dollar against a basket of international currencies in early June, making the commodity less expensive for importers.

For these reasons, Asian petrochemical shares on Monday were extending the strong relief rally for the second consecutive session.

At 02:00 GMT, Mitsubishi Chemical was up 2.07% in Tokyo, Lotte Chemical Corp was up 3.93% in Seoul and Formosa Petrochemical Corp was 0.34% higher in Taipei.

Japan’s benchmark Nikkei 225 Index was 1.38% higher, South Korea’s KOSPI Composite rose by 0.49% and Singapore’s Straits Times Index was up by 1.57%.