Oil prices extend gains as Saudi Arabia announces further output cuts

June 06, 2023 (MLN): Oil prices rose on Tuesday, extending previous gains associated with Saudi Arabia’s decision to slash oil output by another 1 million barrels per day (bpd) from July.

Brent crude is currently trading at $76.44 per barrel, up by 0.13% % on the day.

While West Texas Intermediate crude (WTI) is trading at $71.987 per barrel, up by 0.10 % on the day.

On Monday, Brent crude extended gains of 0.32% after the Saudi energy ministry stated that the country’s output would drop to 9 million barrels per day (bpd) in July from around 10m bpd in May.

This is the biggest reduction in years.

OPEC+ has in place cuts of 3.66m bpd, amounting to 3.6% of global demand, including 2m bpd agreed last year and voluntary cuts of 1.66m bpd agreed in April, as Reuters reported.

The commodity is facing continuous fluctuations amid Saudi output cuts as well as concerns over the global economic backdrop.

Consequently, the price for the commodity closed at gain but a certain backdrop was also witnessed.

ANZ analysts in a research note said, "Supply-side issues took center stage following OPEC’s production cuts. However, the gains were limited amid ongoing concerns over the economic backdrop,"

Market participants are now waiting to see if the U.S. Federal Reserve will hike or hold interest rates in June, and what China's May trade data on Wednesday will indicate about demand in the world's second-largest oil consumer.

A hike in interest rates will reduce energy demand, however, some analysts predict that consumption will be strong.

CME FedWatch Tool is pricing in a 74.8% chance of interest rates pausing at the upcoming June 13-14 meeting.

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