Crude oil futures rallied in midmorning Asian trade June 5, as Saudi Arabia said it will cut its crude output by another 1 million b/d, deepening OPEC+ alliance production cuts to 4.7 million b/d.
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At 10:35 am Singapore time (0235 GMT), the ICE August Brent futures contract was up 80 cents/b (1.05%) from the previous close at $76.93/b, while the NYMEX July light sweet crude contract rose 83 cents/b (1.16%) at $72.57/b.
Saudi Arabia announced June 4 that it will slash its crude output by an extra 1 million b/d for at least July on top of its existing production cuts, in a deal with OPEC+ counterparts, under the country's latest aggressive bid to reverse a tide of bearish trade sentiment and tighten the oil market.
All other OPEC+ members also agreed to maintain their current supply curbs through the end of 2024.
"It is crucial to take OPEC's decision in the context of sentiment and market-based positioning, which is extraordinarily fragile and extremely short," said SPI Asset Management's Managing Partner Stephen Innes in a June 5 note.
"Saudi cut is bullish in terms of fundamentals but very much depends on whether the cut lasts 1-6 months and whether the strength in physical market returns is critical," Innes added.
Analysts expect the oil markets to tighten in the second half of 2023, leading to a strong rally in crude prices if macroeconomic headwinds ease.
"We are maintaining our end-of-year target for Brent crude to USD100/bbl," ANZ Research analysts said in a June 5 note.
While ANZ analysts warned that the short-term gains may be limited, they added that investors will be placing more bullish bets "comfortable that Saudi Arabia and OPEC will provide a backstop should the market hit any hurdles".
SAXO analysts pointed towards the global economic outlook as the main driver behind the impact of the production cuts on oil prices.
"The impact from a similar move in April has been completely erased due to the concerns about the weakness of the global economy and its impact on demand," they said in a June 5 note.
Meanwhile, the market also drew some respite over the weekend after US President Joe Biden signed the debt-ceiling deal into law on June 3, averting a default.
The CBOE Volatility Index (VIS), a gauge of Wall Street's fear, fell to 14.65 on June 2, the lowest intraday level since July 2, 2021.
Dubai crude swaps and intermonth spreads were higher in mid-morning trade in Asia June 5 from the previous close.
The July Dubai swap was pegged at $74.69/b at 10 am Singapore time (0200 GMT), up $3.57/b (5.02%) from the June 1 Asian market close.
The July/August Dubai swap intermonth spread was pegged at 40 cents/b at 10 am, up 5 cents/b over the same period, and the August/September intermonth spread was pegged at 46 cents/b, up 7 cents/b.
The July Brent/Dubai EFS was pegged at $2.26/b, up 27 cents/b.