Oil prices saw a modest rise on Monday as two major oil exporters, Saudi Arabia and Russia, reaffirmed their commitment to voluntary oil output reductions until the year-end, ensuring a tighter supply. Meanwhile, market attention remained fixed on the possibility of stricter U.S. sanctions on Iranian oil.
Brent crude futures climbed by 55 cents, or 0.65%, reaching $85.44 per barrel as of 0700 GMT. Simultaneously, U.S. West Texas Intermediate crude increased to $81.14 a barrel, up by 63 cents or 0.78%.
Saudi Arabia officially declared its intention to persist with its additional voluntary cut of 1 million barrels per day (bpd) through December, maintaining output at approximately 9 million bpd, according to a statement from the Ministry of Energy. This decision aligns with analysts’ expectations.
Russia, in a parallel move, announced its plan to extend its voluntary supply reduction of 300,000 bpd from crude oil and petroleum product exports until the end of December.
Analysts at ING noted that the oil market is anticipated to experience a surplus in the first quarter of the upcoming year. They suggested that this surplus might serve as motivation for Saudi Arabia and Russia to continue their production cuts.
Both Brent and WTI contracts registered their second consecutive weekly declines last week, with a cumulative loss of about 6%. This came as the geopolitical risk premium diminished while U.S. diplomats engaged regional leaders to mitigate the risk of the Israel-Hamas conflict escalating into a broader Middle East crisis.
Suvro Sarkar, an analyst at DBS in Singapore, observed, “The market is not pricing in too much geopolitical risk at current levels, so that remains a key upside risk.”
In the week ahead, investors will closely monitor additional economic data from China, following disappointing October factory data released last week. Tony Sycamore, an IG analyst based in Sydney, anticipates that oil prices will be influenced by Middle East headlines and technical chart patterns during this period.
Sycamore emphasized the importance of WTI maintaining support at $80 per barrel in the early part of the week, as a failure to do so might lead to a decline towards the $77.59 low observed in August.
Sarkar expects Brent crude to maintain support in the range of $80 to $85 per barrel, citing the continued production cuts, the halt in interest rate hikes, and a weakening U.S. dollar following weaker-than-expected U.S. payroll data released on Friday.
On the legislative front, the U.S. House of Representatives passed a bill on Friday aimed at strengthening sanctions on Iranian oil. If signed into law, the bill would introduce measures targeting foreign ports and refineries processing petroleum exported from Iran. Analysts are closely monitoring whether this legislation will impact Iran’s oil exports, bearing in mind that such sanctions can come with national security waivers, and China may continue importing Iranian oil.
In the United States, the number of active oil rigs decreased by 8 to 496 during the past week, marking the lowest count since January 2022, according to the weekly report from energy services firm Baker Hughes.
