Oil up $1 on Saudi plan to deepen output cuts from July

Oil prices were up $1 a barrel on Monday after top global exporter Saudi Arabia pledged to cut production by another 1 million barrels per day from July, counteracting the macroeconomic headwinds that have depressed markets.

Brent crude futures were at $77.21 a barrel, up $1.08, or 1.4 per cent, at 0515 GMT after earlier hitting a session-high of $78.73 a barrel.

US West Texas Intermediate crude climbed $1.07, or 1.5 per cent, to $72.81 a barrel, after touching an intraday high of $75.06 a barrel.

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The contracts extended gains of more than 2 per cent on Friday after the Saudi energy ministry said the kingdom's output would drop to 9 million barrels per day (bpd) in July from around 10 million bpd in May. The cut is Saudi Arabia's biggest in years.

The voluntary cut pledged by Saudi on Sunday is on top of a broader deal by the Organization of the Petroleum Exporting Countries and their allies including Russia to limit supply into 2024 as the group seeks to boost flagging oil prices.

The group, known as OPEC+, pumps around 40 per cent of the world's crude and has in place cuts of 3.66 million bpd, amounting to 3.6 per cent of global demand.

"Saudi remains keener than most other members in terms of ensuring oil prices above $80 per barrel, which is essential for balancing its own fiscal budget for the year," said Suvro Sarkar, leader of the energy sector team at DBS Bank.

"Saudi will probably continue doing whatever it takes to keep oil prices elevated ... and take calculated pre-emptive steps to ensure the macro-concerns potentially affecting demand are negated."

Consultancy Rystad Energy said the additional cut by Saudi is likely to deepen the market deficit to more than 3 million bpd in July, which could push prices higher in the coming weeks.

Goldman Sachs analysts said the meeting was "moderately bullish" for oil markets and could boost December 2023 Brent prices by $1-$6 a barrel depending on how long Saudi Arabia maintains output at 9 million bpd over the next six months.

Many of the OPEC+ reductions will have little real impact, however, as the lower targets for Russia, Nigeria and Angola bring them into line with their actual production levels.

"This is mostly a reduction on paper as it just aligns the realities of continuing lower production levels compared to existing targets in some OPEC countries," said DBS Bank's Sarkar.

In contrast, the United Arab Emirates (UAE) was allowed to raise output targets by 200,000 bpd to 3.22 million bpd to "soothe concerns" about it possibly leaving OPEC, Sarkar said.

In the United States, meanwhile, the oil rig count slumped by 15 to 555 last week, the lowest since April 2022, Baker Hughes Co said in its weekly report on Friday.

US drilling has slowed since December due to weaker prices, higher costs and as companies divert spending to repaying shareholders.