NEW YORK (Reuters) — Oil prices rose by more than 1 percent a barrel on Monday after top crude exporter Saudi Arabia pledged to cut production by a further 1 million barrels per day (bpd) from July to counter macroeconomic headwinds that have depressed markets.
Brent crude futures were up $1.00, or 1.3 percent, at $77.13 a barrel by 11:05 a.m. EDT (1505 GMT) after touching a session high of $78.73.
U.S. West Texas Intermediate crude gained by 87 cents, or 1.2 percent, to $72.61 after hitting an intraday high of $75.06.
The move comes almost one year after President Joe Biden's trip to Saudi Arabia, during which he fist-bumped autocratic Crown Prince Mohammed bin Salman, prompting widespread criticism. Despite Biden's visit, the Saudi-led Organization of Petroleum Exporting Countries (OPEC) in October announced a production cut, leading Biden to vow "consequences" for the Middle Eastern country. The president never followed through on his threats, the Washington Free Beacon reported.
After oil prices rose on Monday, CNN anchors wondered if the move would cause U.S. gas prices to rise, with morning show host Poppy Harlow saying the move "really brings into question … Biden's trip to Saudi Arabia."
Both contracts extended gains of more than 2 percent on Friday after the Saudi energy ministry said the kingdom's output would drop to 9 million bpd in July from about 10 million bpd in May. The cut is Saudi Arabia's biggest in years.
The voluntary cut is on top of a broader deal by the OPEC and allies, including Russia, to limit supply into 2024 as the OPEC+ producer group seeks to boost flagging oil prices.
Fatih Birol, head of the International Energy Agency (IEA), on Monday said that the chance of higher oil prices had increased sharply after the new OPEC+ deal.
OPEC+ pumps about 40 percent of the world's crude and has cut its output target by a total of 3.66 million bpd, amounting to 3.6 percent of global demand.
"The market is still trying to assess the impact of what the Saudi production cut actually means," said Phil Flynn, an analyst at Price Futures Group. "Oil seems to be taking the news as very bullish, and it is."
SEB analyst Bjarne Schieldrop said the market reaction on Monday was relatively muted after the previous cut by OPEC+ failed to prop up prices for long.
Consultancy Rystad Energy said the additional Saudi cut is likely to deepen the market deficit to more than 3 million bpd in July, which could push prices higher in the coming weeks.
Goldman Sachs analysts said the meeting was "moderately bullish" for oil markets and could boost December 2023 Brent prices by between $1 and $6 a barrel depending on how long Saudi Arabia maintains output at 9 million bpd over the next six months.
"The immediate market impact of this Saudi cut is likely lower, as drawing inventories takes time, and the market likely already put some meaningful probability on a cut today," the bank's analysts added.
Many of the OPEC+ reductions will have little real impact as the lower targets for Russia, Nigeria, and Angola bring them into line with their actual production levels. In contrast, the United Arab Emirates (UAE) was allowed to raise output targets by 200,000 bpd to 3.22 million bpd to reflect its larger production capacity.
(Reporting by Stephanie Kelly; additional reporting by Noah Browning, Florence Tan, and Emily Chow; editing by David Goodman and Will Dunham.)