Oil prices gained about 2% on Thursday as Saudi Arabia and Russia were taking steps to keep supplies tight into September and possibly beyond. Brent futures rose $1.86, or 2.2%, to $85.06 a barrel, while U.S. West Texas Intermediate crude rose $2.03, or 2.6%, to $81.52. Saudi Arabia said it will extend a voluntary oil output cut of one million barrels per day (bpd) for another month to include September, adding it could be extended beyond that or deepened. That would keep the kingdom’s voluntary output cut in place for a third month after it announced voluntary cuts for July and extended those cuts for August. Saudi Arabia’s production is expected to be around 9 million bpd in September. In Russia, meanwhile, Deputy Prime Minister Alexander Novak said the country will cut oil exports by 300,000 bpd in September.
Those announced cuts follow moves in June by the Organization of the Petroleum Exporting Countries (OPEC) and its allies like Russia, collectively known as OPEC+, to limit oil supply into 2024. OPEC+ ministers will on Friday meet to review the market. A lack of big price moves in recent weeks cut Brent’s historic or actual 30-day close-to-close futures volatility to 22.4%, its lowest since February 2022. On a daily basis, historic volatility hit a record high of 150.9% in January 1991 and a record low of 8.6% in June 2014. Historic volatility averaged 33.1% so far this year, down from 44.1% in 2022 and a five-year (2018-2022) average of 37.6%. Despite the lack of sharp price movements, open interest in Brent futures rose to its highest since July 2021.
In the U.S., the number of Americans filing new claims for unemployment benefits rose slightly last week, while layoffs dropped to an 11-month low in July as labor market conditions remain tight. Despite labor market tightness, analysts said the U.S. inflation outlook continues to improve and the risk of a recession is less likely, which is good news for oil demand. In China, the world’s second biggest oil consumer, the central bank pledged to guide more financial resources towards the private economy, suggesting refreshed urgency from Beijing to bolster confidence as economic momentum weakens. In other parts of the world, however, there were still concerns that interest rate hikes to reduce stubborn inflation could slow economic growth and reduce oil demand.
In the UK, the Bank of England raised interest rates to a 15-year high of 5.25% from 5% on Thursday to try to tame inflation. In Europe, a downturn in euro zone business activity worsened more than initially thought in July as the slump in manufacturing was accompanied by a further slowing of growth in the bloc’s dominant services industry. Global oil and stock markets declined after rating agency Fitch downgraded the main U.S. credit rating, reflecting an expected fiscal deterioration as well as a high and growing government debt burden.
