Oil prices remained unchanged on Monday, maintaining their highest levels in nearly four months, thanks to major producers Saudi Arabia and Russia extending supply cuts. The market’s attention now shifts to important inflation readings scheduled for this week.
Crude markets saw a sixth consecutive week of gains following the recent Saudi and Russian supply cuts, with hopes that tightening supplies will counterbalance potential demand slowdowns.
However, economic data continues to portray a gloomy outlook for China, a major oil importer.
Brent oil futures stabilized at approximately $86.22 per barrel. While West Texas Intermediate crude futures were flat at $82.78 per barrel, both reaching their peak levels since mid-April.
Oil Prices Aided by Supply Cuts and OPEC+ Meeting Surprises
The significant support for oil markets in the past week came from extended supply reductions by Saudi Arabia and Russia. With both countries committing to maintain these cuts until at least the end of September.
Saudi Arabia plans to reduce production by 1 million barrels per day (bpd), while Russia will cut oil exports by 300,000 bpd.
These measures aimed to boost oil prices, and their impact has been evident, with prices rising 14% in July.
The production cuts were announced before a meeting of the Organization of Petroleum Exporting Countries and allies. Where the cartel surprisingly kept its output policy unchanged.
Tighter Supplies Expected to Support Oil Prices in the Second Half
Despite these measures, the prospect of tighter supplies is expect to continue supporting oil prices through the second half of the year. Several investment banks have recently upgraded their oil price forecasts for 2023, attributing the positive outlook to tighter supplies.
High Oil Prices Offset Potential Demand Decline
High oil prices are anticipated to mitigate potential declines in demand as the global economy cools due to high interest rates and a slowdown in China’s economic recovery.
Focus on U.S. and Chinese Inflation Readings
Investors are now closely focus on inflation readings from both the U.S. and China, expect later this week.
U.S. consumer price index inflation is projected to have slightly increased in July, remaining above the Federal Reserve’s target range. Which could influence the central bank’s future decisions.
Conversely, Chinese inflation is expected to have declined further in July, indicating near-term weakness for the world’s largest oil importer amid a post-COVID economic recovery.
Furthermore, Chinese trade data, scheduled for release on Tuesday, will provide additional insights into crude demand in the country. With China’s oil imports maintaining close proximity to record highs throughout the year