Crude oil prices experienced an increase on Tuesday following the news that both Saudi Arabia and Russia would implement further supply cuts in August.
These cuts, which account for approximately 1.5% of global supply each, are expected to boost fuel prices for drivers worldwide in the second half of the year.
Market forecasts indicate that there is a strong possibility that Saudi Arabia will maintain its supply cuts of 1 million barrels a day until August.
The Saudis have also warned that they may extend these cuts further if global demand remains weaker than expected. As a result of the extended cuts, Saudi oil output has been reduced to just 9 million barrels per day, marking the lowest level in years.
The additional voluntary production cut aims to reinforce precautionary efforts by OPEC+ countries to support stability and balance in the oil market.
Oil prices recently experienced a decline for the fourth consecutive quarter as investors expressed concerns about a slowdown in global economic activity, which could potentially dampen demand for fuel.
Over the three months leading up to the end of June, the Brent crude contract closed with a 6% decrease. Currently, global benchmarks are trading around $75 per barrel after a 13% fall by 2023.
Prices were initially weighed down by higher interest rates in major economies and a slower-than-expected recovery in Chinese manufacturing and consumption.
Last month, the International Energy Agency stated that the OPEC+ production deal would significantly enhance the prospects for higher prices, and Saudi Aramco predicted that demand from China and India would offset recession risks in advanced economies.
The recent supply cuts by OPEC+ and increased demand from China could lead to a rebound in oil prices during the second half of the year. OPEC and its allies have reduced production by 3.66 million barrels since November in order to support prices.
The latest cuts are scheduled to take effect in July, and Saudi Arabia announced its own production cuts earlier this month, which are also set to be implemented next month.
Additionally, China, as the world’s largest oil importer, is expected to experience a recovery in demand, potentially exerting upward pressure on oil prices.
The oil sector was affected by rising interest rates resulting from the Federal Reserve’s rate hikes in the first half of the year, and these headwinds persist.
However, despite an increase in the number of mergers and acquisitions from 59 to 34 during the first five months of the year, the deal value remained relatively stable at $42.5 billion, showing minimal change compared to the second half of last year ($43 billion).