Oil prices surge as Saudi Arabia announces supply cuts

Oil prices soared on Monday, with the WTI price touching $74.3 per barrel. If the WTI price declines, it may encounter support near $70 per barrel again, while resistance may be found near $74.6 per barrel.

Market participants eagerly awaited the outcome of the OPEC+ meeting over the weekend. Global economic concerns have been weighing oil prices down, raising concerns about further oil production cuts. OPEC+ members, however, opted to keep production cuts unchanged for the remainder of 2023. This includes the 2 million barrels-per-day cut announced last October. Saudi Arabia, on the other hand, announced substantial voluntary cuts in its oil output. Saudi Arabia will reduce production by an additional one million barrels per day starting in July for a month that can be extended. This will reduce Saudi Arabia's production to 9 million barrels per day. The Kingdom will also extend a production cut of 500,000 barrels per day, which was announced in April, through 2024. Supply concerns drove oil prices up after the announcement.

The US debt crisis has been affecting not only the dollar but most assets and commodities, including oil. US President Joe Biden and Republican House Speaker Kevin McCarthy have negotiated a deal that will raise the government's $31.4 trillion debt ceiling, preventing the US from going into default. The US Congress passed the value to raise the US debt limit on Friday, and the US President signed the deal on Saturday, propping up oil prices.

Oil prices are boosted by diminishing rate hike expectations. US Federal Reserve Chair Jerome Powell indicated that the US Central Bank may pivot in a more dovish direction. The Federal Reserve raised interest rates by 25 basis points at its latest monetary policy meeting, bringing the benchmark interest rate to a 16-year high target range of 5.00% to 5.25%. The US Central Bank has signaled that its hawkish policy is coming to an end, providing support for oil prices. As major central banks are winding down their hiking cycles, the oil demand outlook rises.

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Written by:
Myrsini Giannouli

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