Saudi Arabia and Russia deepen oil cuts, sending prices higher

Saudi Arabia and Russia, the world's biggest oil exporters, deepened oil cuts on Monday, sending prices higher despite concerns over a global economic slowdown and possible further interest rate hikes from the U.S. Federal Reserve.

Saudi Arabia said it would extend its voluntary oil output cut of one million barrels per day (bpd) for another month to include August, adding that the cut could be extended beyond that month. Shortly after the Saudi announcement, Russian Deputy Prime Minister Alexander Novak said Moscow would cut its oil exports by 500,000 barrels per day in August.

The cuts amount to 1.5% of global supply and bring the total pledged by OPEC+ to 5.16 million bpd. OPEC+, which groups the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, pumps around 40% of the world's crude.

The alliance has been cutting supply to lift up prices since November last year due to weaker Chinese demand and rising U.S. supply but so far has failed to move them much from the range of $70-$80 a barrel.

Brent crude futures rose 89 cents to $76.30 a barrel by 0950 GMT on Monday, while U.S. West Texas Intermediate crude gained 77 cents to $71.41 a barrel.

The Saudi Energy Ministry said the additional voluntary cut comes to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets.

Russia, the world's second largest oil exporter after Saudi Arabia, has already pledged to reduce its output by 500,000 barrels per day (bpd) to 9.5 million bpd from March until year-end.

The decision by Saudi Arabia and Russia came amid concerns over weaker demand's effects on prices as the U.S. and China, the world's top two economies, lost speed in the second quarter.

Fears of a further slowdown hurting fuel demand grew after data on Friday showed U.S. inflation still outpacing the central bank's 2% target and stoked expectations it would hike interest rates again.

Higher interest rates could strengthen the greenback, making commodities more expensive for holders of other currencies, and also dampen oil demand.

The decision also came after Russia invaded Ukraine and threatened nuclear war last week, triggering a global crisis and raising fears of supply disruptions from the region.

The U.S., which is backing Ukraine against Russia, criticized the decision by Saudi Arabia and Russia as politically motivated and harmful to the global economy and energy prices.

President Joe Biden pledged consequences for Saudi Arabia over its oil production cuts, saying they were not in line with its strategic partnership with Washington.

Saudi Arabia defended its decision as based on economic considerations and market stability, saying it was not influenced by any external factors.

Additional reading: