Investors in hard commodities are perhaps one of the happiest people on the market right now. This is because oil prices jumped significantly after Russia and Saudi Arabia agreed to extend production cuts for another nine months. The cuts, which were originally set to expire at the end of March, will not be in place until the end of 2023.
The decision to extend the cuts was seen as a positive sign for the oil market, which has been struggling with oversupply in recent years. The cuts are expected to help reduce the global oil glut and boost prices. The extended production cut would cut 300,000 bpd for the same period.
Russian Seaborne Oil Exports
Source: S&P Global Commodity Insights
According to oilprice.com, Russia extended its voluntary decision to curb exports until December 2023, acting in concert with Saudi Arabia, with the alleged aim of maintaining stability and balance in the oil markets. In the meantime, Russian seaborne crude and product exports fell to their lowest since September 2022 as strong domestic demand in the summer kept volumes available for external markets capped.
Lower Russian crude exports will ease the task of the country’s exporters as they are set to rely more on their shadow fleet, the utilization of which rose to 40-45% of all oil exports in July-August, avoiding G7 shipping and insurance.
According to oilpirce.com, Chinese oil major Sinopec has created a new business unit to invest in refining and petrochemical assets outside of China, rekindling rumors that it might buy Shell’s Singapore refinery. Moreover, U.S. lithium major Albemarle upped its takeover bid for Australian producer Liontown Resources to $4.3 billion, with the latter’s board unanimously recommending shareholders to accept.
Brent crude, the global benchmark, rose by more than 2% to over $70 per barrel on Wednesday. US West Texas Intermediate (WTI) crude also rose by more than 2% to over $65 per barrel.
The decision to extend the cuts was also seen as a sign of cooperation between Russia and Saudi Arabia, the two largest oil producers in the world. The two countries have been working together to support oil prices in recent years. What would this extension of oil production cut would mean for the global economy?
First, for producers, higher oil prices mean profit for them. This is because they can sell their oil for a higher price. However, oil producers may also be affected by the global economic outlook. If the economy is weak, demand for oil may be lower, even if prices are high.
Second, for consumers, higher oil prices can lead to higher gasoline prices for consumers. This is because gasoline is made from oil. Higher gasoline prices can have a negative impact on the economy, as consumers have less money to spend on other goods and services.
And third, for the global economy itself, higher oil prices can have a negative impact on the global economy. This is because oil is used in many different industries, including transportation, manufacturing, and construction. Higher oil prices can lead to higher costs for businesses, which can lead to lower profits and job losses.
The extension of the cuts is likely to have a positive impact on the global oil market. It is expected to help reduce the global oil glut and boost prices. This could benefit oil companies and oil-producing countries. However, it could also lead to higher gasoline prices for consumers.