How are the decisions of the world's largest oil producers, Saudi Arabia and Russia, to cut production affecting international oil prices?
Following the announcements by the world's major oil producers to cut supply, international oil prices have been on the rise. The decisions by Saudi Arabia and Russia, in particular, have exceeded market expectations and pushed international oil prices, which were already moving at high levels, to the next level.
Changes as oil prices rise
Saudi Arabia and Russia's decision to cut oil supply immediately impacted international crude oil prices. The futures price of WTI crude oil rose to $86.69 per barrel, while the futures price of North Sea Brent crude soared to $90.04 per barrel.
Production cuts extended for longer than expected
Originally, the market expected the Saudi and Russian cuts to be extended for only one month, but in fact, the countries voluntarily extended their supply of petroleum coal for up to three months.
Reduced daily petroleum coal production
If Saudi Arabia continues to implement the 1 million barrels per day cut, the country's daily crude oil coal production will only be around 9 million barrels per day by October-December.
Monthly supply cut policy review meetings
Saudi Arabia and Russia have been holding monthly supply cut policy reviews, leaving the door open for modifications based on market conditions.
Outlook for tight crude supply
Giovanni Staunovo, an analyst at UBS, predicts that "extended production cuts will result in an average shortfall of around 1.5 million barrels per day." This situation has raised concerns in the market about a short-term oil supply shortage, which has led to the phenomenon of backwardation.
Backwardation and its implications
Along with the rise in oil prices, the market also observed a phenomenon known as backwardation. Backwardation is a phenomenon in futures markets where the price of a near-month contract is higher than the price of a far-month contract. This typically reflects a tightening of supply, making it difficult to meet short-term demand, and has been particularly pronounced following the production cuts by Saudi Arabia and Russia.
Economic outlook and oil prices
Increased oil demand and higher prices are attributed to Saudi Arabia's oil production cuts, which began in July, and the expectation that the U.S. economy will avoid a recession. In particular, Goldman Sachs' drop in the probability of a U.S. recession (from 20% to 15%) reflects optimism about the global economy, and this optimism is driving increased oil demand.
Oil price outlook
Based on current international oil price trends, the price of North Sea Brent crude is expected to rise to $95 per barrel by the end of the year, according to UBS's analysis.
Bottom line.
The decision by major oil producers such as Saudi Arabia and Russia to voluntarily cut production has put additional pressure on the already suffering international oil market. As a result, both WTI and North Sea Brent have risen significantly, and this movement is likely to continue.
However, there are still concerns in the market about oil supply shortages in the near term, which is adding to the instability of oil prices. In this situation, investors and consumers will need to watch market trends more carefully.
Finally, we shouldn't forget that Saudi Arabia's and Russia's decisions to cut oil production have had a significant impact on international oil prices. Policy changes in these countries will continue to have a significant impact on the global economy as a whole, and the various developments that arise from them will continue to be closely watched.
