Saudi Arabia and Russia agreeing that they could extend their production cuts beyond their original expires resulted in substantial gains for oil on Tuesday, with two key benchmarks rising over 1 percent, according to Ship & Bunker. Brent settled up $1.04, or 1.2 percent, at $90.04 per barrel, while West Texas Intermediate settled up $1.14, or 1.3 percent, at $86.69 per barrel, a 10-month high.
The Saudis and Russia stated they would review the supply cuts monthly and could modify them depending on market conditions; analysts noted that this could result in a market deficit of more than 1.5 million barrels per day (bpd) in the fourth quarter of this year.
Bloomberg pointed out that with regard to the Saudi initiative, "The move will hold output at about 9 million bpd-the lowest level in several years-for six months in total."
Reacting to the development, UBS said it now expects Brent to rise to $95 per barrel by year- end: "With the production cut extended, we anticipate a market deficit of more than 1.5 million bpd in 4Q23," UBS analyst Giovanni Staunovo added. The move will hold output at about 9 million bpd Also supporting prices on Tuesday was Goldman Bloomberg Sachs suggesting that a U.S. recession starting in the next 12 months at 15 percent was a distinct possibility, this was down from an earlier forecast of 20 percent.
Goldman also predicted the negative impact from monetary policy tightening will continue to diminish before "Vanishing entirely" by early 2024. That said, hand-wringing on Tuesday over a major impediment to oil prices of late - the state of the economy in China - continued, with Oilprice.com worrying that "The world's second-largest economy now risks missing Beijing's own growth target for a second straight year and could expand at a sub-5 percent pace for three years in a row-something unheard of since the death of Mao Zedong in 1976.