Oil up 2% as Russia extends Saudi game of production threats 

© Reuters.

Investing.com - Another production cut threat and nearly $2 a barrel more for oil.

Crude prices rose for a sixth day in a row Thursday, the latest advance coming after Russian Deputy Minister and de-facto oil minister Alexander Novak said Russia and OPEC+ will announce further “actions” next week. 

While there were no specifics, few were in doubt on what the messaging was about: To tell traders — particularly the bears who had driven prices down the prior two weeks — that another round of production cuts could be coming in September/October and not to try shorting the market.

Novak’s comments came after Reuters, using secondary sources on oil production, estimated that output within the narrower OPEC, or the 13-member Organization of the Petroleum Exporting Countries led by Saudi Arabia, had climbed by 220,000 barrels per day — thanks to a jump in Iranian output. 

Iran is a founding member of the six-decade old OPEC that is essentially treated as an outcast within the cartel due to Trump-era sanctions on its oil exports. Once a major burden to its economy, the sanctions mean little these days to Tehran, thanks to the little enforcement by the Biden administration. Iran’s crude production and exports have both been growing steadily the past two years to the consternation of the Saudis and Russians, who jointly steer OPEC+, the broader alliance of oil producers consisting of 23 countries.    

New York-traded West Texas Intermediate, or WTI, crude settled up $2, or 2.5%, at $83.63 per barrel. Week-to-date, the U.S. crude benchmark is up 4.8% after a combined drop of some 4% over two prior weeks and an earlier rally of 20% over seven weeks. 

London-traded Brent settled up $1, or 1.2%, at $86.86 per barrel. Brent rose 2.8% on the week, after a combined 2.3% drop over two weeks. Prior to that, the global crude benchmark rose for seven weeks in a row, gaining a total of 18%.

“It's not entirely clear what Novak is referring to here but he said that Russia agreed with OPEC+ of further actions,” Adam Button, a commentator on oil, said on the ForexLive forum after the latest jump in crude prices. “He might be referring to an extension of Russian cuts or a larger OPEC deal.”

For context, the Saudis, producing oil for years at below capacity to choke the market into paying higher prices, announced an additional million barrels per day cut from July which they seem determined now to carry through into October at least. The Russians, who just a few months ago seemed happy to sell their oil at whatever price they could get for a barrel to sustain their Ukraine-war-damaged economy, have joined the Saudis now in trying to squeeze the market.  

Until Thursday, the restart of the oil rally had been relatively slow, with crude prices gaining modestly on most days, sometimes after volatile trading on demand concerns.  The latest session was the first time where it had advanced 2% in a day over the past fortnight, as the Russian threat of production cuts came on top of a sizable third-week-in-a-row tumble in U.S. crude stockpiles.

(Peter Nurse and Ambar Warrick contributed to this item)