Saudi Arabia's series of cuts in oil production since last fall could finally be impacting prices. The markets had mostly ignored these moves and focused instead on the shaky world economy. But this week, Brent crude, which is the international benchmark price, rose over $80 per barrel for the very first time since April.
The International Energy Agency (IEA), a Paris-based monitoring organization, published a report on Thursday stating that production cuts could result in hefty deficits of global oil supply beginning in July. This would likely push up prices and squeeze consumers.
After a relative calm period, we expect renewed volatility and upward price pressure in the next few months', said Toril Bosoni. He is the head of the Oil Market Division at the International Energy Agency.
A sustained increase in oil prices would be a major win for Saudi Oil Minister Prince Abdulaziz bin Salman who chairs the group of oil producers known as OPEC Plus. He has been trying to convince traders to believe that Saudi Arabia, and other oil producers will cut their output to maintain the market's balance.
Saudi Arabia announced in early July that it would begin a new program of terrorism prevention.
Extend a reduction of one million barrels
It was first announced in early June, for a month through August. It is noteworthy that Russia has also announced it will remove 500,000 barrels from the market in August.
Analysts say that Saudi Arabia is looking for relatively high oil prices in the range of $90 per barrel to fund a development program headed by Crown Prince Mohammed Bin Salman, half-brother of the oil minister.
Markets have largely ignored Saudi Arabia's moves until recently. Traders were worried about a possible economic recession.
Particularly in China
Tensions between Riyadh, and Moscow could also reduce demand for oil.
Lead to a fight for market share
Like the ones that crashed oil prices in 2014.
Prince Abdulaziz, speaking at a OPEC conference at Vienna's opulent Hofburg Palace on the 5th of July, said: "There is a lot of negativity. It is a variety of negativity that takes everything hostage."
Nevertheless, the markets may be beginning to shift in favor of OPEC.
Helima Croft is the head of global commodities for RBC.
The economic outlook is important. Oil prices may increase if concerns about inflation and growth in the global economy ease.
'I anticipate that crude oil prices will increase sharply in this second half due to the solidly recovering demand from China, India, and the U.S., as well as the deep cuts in supply by OPEC+, particularly Saudi Arabia', said Bob McNally of Rapidan Energy Group.
Russia appears to be cooperating with Saudi Arabia's cuts. According to the International Energy Agency, Russian oil exports in June fell by around 8 percent from a month before. The agency estimates that Moscow's revenue from these sales has fallen by nearly 50 percent to $11.8 billion compared with the previous year.
Viktor Katona is an analyst with Kpler who tracks these shipments. He says that Russian seaborne exports dropped again to their lowest level of the year in July.
Prices may not rise as much as expected due to other factors. The International Energy Agency has lowered its forecast of growth in oil consumption in 2023 for the first time in this year by 220,000 barrels per day to 2.2 millions barrels per day. This is largely due to slower growth than expected in China.
The agency predicts that, while global oil demand will still reach a record of over 102 million barrels per day in 2023 the rate of growth in 2024 will be halved, partly because electric vehicles are helping to curb oil consumption.
OPEC's cutbacks are being offset by the fact that supplies continue to increase from outside the group, including from the United States of America, Brazil, and Guyana.
OPEC is also a potential source of additional oil. Saudi Arabia will now produce just 9 million barrels a year, its lowest level in the past two years. According to the International Energy Agency, this is the same as Russia, the top OPEC Plus producer. Analysts said that the Saudis wanted to restore this production as quickly as possible.