In a resolute upward trajectory, oil prices surged on Friday, poised for their sixth consecutive week of gains, bolstered by the joint efforts of major oil players Saudi Arabia and Russia, who announced extensions to their substantial supply cuts. The two behemoth producers affirmed their commitment on Thursday to prolong the supply reductions until the culmination of December, with potential extensions looming beyond that horizon. Notably, Saudi Arabia will steadfastly uphold its 1 million barrels per day (bpd) reduction in production, paralleled by Russia’s decision to curtail oil exports by an additional 300,000 bpd.
This timely announcement arrived on the cusp of a pivotal gathering of the Organization of Petroleum Exporting Countries and its allies (OPEC+), held on Friday, where the dominant entities within the cartel, Saudi Arabia and Russia, hinted at the plausibility of more profound cuts in a bid to invigorate oil prices. Despite these indications, expectations lean towards the announcement of a status quo in overall production output by the cartel on Friday.
Consequently, the market’s response has been palpable, ushering in a complete recuperation of oil prices from any prior weekly losses. Analysts and traders alike are staking their bets on the belief that the constricting supply narrative will substantially counterbalance potential drops in demand stemming from this year’s lackluster global economic circumstances.
Navigating the realms of this bullish sentiment, Brent oil futures carved a modest 0.3% ascend to reach $85.45 per barrel, while West Texas Intermediate crude futures managed a 0.4% upswing, settling at $81.91 per barrel as of 21:39 ET (01:39 GMT). As the clock ticked, these contracts poised to conclude the week with commendable gains of 0.5% and 1.6%, respectively.
Fueling this fervor, the panorama for oil markets gleaned added optimism from U.S. stockpiles, which exhibited a notably larger-than-anticipated reduction of over 17 million barrels in the previous week. This milestone drawdown etched itself into the annals of history, marking the most substantial decrease in reserves dating back to 1982. The undeniable inference is that oil supplies in the world’s most eminent consumer are undergoing a marked constriction.
As the market absorbed these developments, it appeared largely impervious to concerns encircling a sovereign rating downgrade for the United States by Fitch Ratings. Analysts are proffering a sanguine perspective for oil prices in the current year, emboldened by the progressively tighter supply scenario.
Nevertheless, amidst these strides, the ascension of oil prices encountered impediments in the form of a resurgent U.S. dollar. The greenback’s formidable rally during the week, driven by apprehensions of an increasingly hawkish stance from the Federal Reserve, exerted pressure, tempering the momentum of oil prices in recent trading sessions.
Friday’s gains were further stymied by a discernible sense of caution permeating the markets ahead of the impending release of vital nonfarm payroll data for July. The implications are significant, as any indication of robustness within the labor market could potentially set the stage for a more hawkish posture on U.S. interest rates, thereby emboldening the dollar’s standing and potentially denting the resilience of oil markets.
Preceding this, private payroll data divulged earlier in the week already cast a promising light on the U.S. employment landscape, paving the way for comparable revelations from the official data slated for release later in the day.