US crude oil prices have emerged from a period of relative inactivity in 2023 to reach 10-month highs.
USOIL: Daily Chart
The price of US oil surged in the last two weeks to trade at $87.61. Based on technical analysis, the next targets for oil are $90 and $93.
Oil prices surged after Saudi Arabia and Russia announced that they would extend their oil production cuts through the end of the year. Riyadh’s decision to extend its voluntary production cut of 1 million barrels per day (bpd) will be reviewed monthly to determine whether to deepen the cut or increase production, according to the state-run Saudi Press Agency (SPA).
A resurgence of inflation could lead the Federal Reserve to add more interest rate hikes. According to the CME FedWatch Tool, futures markets currently anticipate no further rate hikes for this cycle, and a potential rate cut by May 2024.
Federal Reserve Governor Christopher Waller stated on CNBC on Tuesday that the Federal Reserve can “proceed cautiously” with further interest rate increases. “There is nothing to suggest that we need to take any immediate action,” he said of additional increases in light of the recent economic data he has seen.
Fellow OPEC+ member Russia has also extended its voluntary production cuts through the end of the year “to maintain stability and balance” in oil markets, according to the country’s Deputy Prime Minister Alexander Novak. The world’s second-largest oil exporter is reducing exports by 300,000 barrels per day (bpd) and has been cutting output and exports with Saudi Arabia in addition to existing OPEC+ supply reductions.
Russia previously announced that it would voluntarily reduce its oil exports by 500,000 barrels per day (bpd), or about 5% of its output, in August and by 300,000 bpd in September. Although Saudi Arabia was widely expected to extend its voluntary cuts into October, and Russia had indicated it would follow suit, the additional three-month extension caught markets by surprise.
“It would appear they’re trying to double down and capitalise on the recent price moves. Put a big buffer in place for when the cuts end,” analyst Craig Erlam told Reuters.
Central bankers will now be monitoring oil prices more closely, as a recent slump has helped to reduce inflation.