Oil prices rose on Monday as Saudi Arabia and Russia announced supply cuts for August, overshadowing concerns about the global economic slowdown and potential increases in US interest rates.
Saudi Arabia plans to extend its voluntary cut of one million barrels per day (bpd) for another month to include August, according to the state news agency. Meanwhile, Russia, in collaboration with Saudi Arabia, will reduce its oil exports by 500,000 bpd in August, further tightening global supplies.
Riyadh and Moscow have been working to support prices, which have fallen from $113 per barrel a year ago due to worries about economic growth and excess supply from major producers.
Brent crude futures rose 0.9%, or 68 cents, to $76.09 a barrel by 1021 GMT. US West Texas Intermediate crude increased nearly 1%, or 69 cents, reaching $71.33 after a 1.1% gain in the previous session.
PVM analyst Tamas Varga stated, “Investors are optimistic as the second half of the year begins. They expect a tighter oil balance, and positive equity markets suggest that a recession will likely be narrowly avoided.”
Earlier in the session, prices had fallen due to a faster than expected contraction in eurozone manufacturing activity in June, and concerns about the tightening policies of the European Central Bank affecting finances.
Fears of an economic slowdown impacting fuel demand have increased as US inflation continues to surpass the central bank’s 2% target, leading to expectations of further interest rate hikes.
Higher interest rates could strengthen the US dollar, making commodities such as oil more expensive for buyers holding other currencies. Additionally, factory activity growth in China, the world’s largest crude importer, slowed in June according to the Caixin/SP Global private sector survey.
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