Oil rises as markets weigh supply cuts against gloomy macroeconomic outlook

London — Oil prices rose on Tuesday as markets weighed supply cuts for August by top exporters Saudi Arabia and Russia against the backdrop of an uncertain global economic outlook.

Brent crude futures climbed 32c, or 0.42%, to $75.73 a barrel by 8.05am GMT. US West Texas Intermediate crude was at $70.96 a barrel, up 32c, or 0.45%.

On Monday, Saudi Arabia said it would extend its voluntary output cut of 1-million barrels per day to August, while Russia and Algeria volunteered to lower their output and export levels for August by 500,000 and 20,000 barrels per day respectively.

If fully implemented, that will lead to a combined reduction of 5.36-million barrels per day versus August 2022 levels — possibly even more as several member countries are unable to fulfil their quotas, said PVM analyst Tamas Varga.

However, oil benchmarks settled down about 1% in the previous session, after an initial rally, on the back of a gloomy macroeconomic outlook.

Business surveys have shown a slump in global factory activity because of sluggish demand in China and Europe and US manufacturing also fell further in June, reaching levels last seen in the initial wave of the Covid-19 pandemic.

This broader uncertainty is likely to overshadow the Opec+ effort to tighten supply, some analysts said. Combined with expectations of higher US interest rates and fears that the US will join the EU in recession, this will continue to weigh on markets, Eurasia Group analysts said.

Despite the best efforts of Saudi Arabia and Russia, said Naeem Aslam, chief investment officer at Zaye Capital Markets, “the days may be over for oil prices to jump back above the 90 price mark, and the prices are more likely to consolidate between the 65 and 70 price ranges”.

US markets are closed on Tuesday for the Independence Day holiday.

Reuters