Oil Futures Rise as Saudi Arabia and Russia Extend Production Cuts

Monitoring Israel-Hamas Conflict and Crude Supplies

Price Action

  • West Texas Intermediate (WTI) crude for December delivery rose $1.42, or 1.8%, to $81.93 a barrel on the New York Mercantile Exchange.
  • January Brent crude gained $1.38, or 1.6%, to $86.27 a barrel on ICE Futures Europe.

Market Drivers

Saudi Arabia has confirmed that it will extend a production cut of 1 million barrels a day through December. This cut was initially implemented in July and will now continue next month. Russia has also announced an extension of its production cut by 300,000 barrels a day through December.

Analysts at ING suggest that while these extensions were expected, the market will be more interested in whether the cuts will continue into early 2024. They highlight the surplus in the oil balance for the first quarter of 2024, which may influence Saudi Arabia and Russia to maintain the cuts during the seasonally weaker demand period of Q1.

Last week, WTI experienced a decline of 5.9%, while Brent fell 4.8% – marking the second consecutive weekly decline for both grades. These drops can be attributed to fading concerns over an escalation of the Israel-Hamas conflict.

Previously, there were fears that a wider conflict could lead to increased U.S. enforcement of sanctions on Iranian crude exports. Furthermore, there were concerns that Iran or its proxies could potentially disrupt key transportation chokepoints and infrastructure in the region. However, as these fears subsided, crude oil rallied.

As investors keep a close eye on the Israel-Hamas war for any potential spillovers, oil futures rose on Monday. The extensions of production cuts by Saudi Arabia and Russia have contributed to this price increase.

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