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Oil Prices Break Resistance Levels on Renewed Supply Constraints

Despite a mild decline on Friday, oil prices were on track to record their third consecutive week of gains, indicating the first upward price risk since April 2023. The upward momentum occurred because of concerns regarding supply disruptions in Libya and Nigeria and optimism surrounding increased demand for US crude amidst a cooling inflationary environment. The series of oil output cuts orchestrated by Saudi Arabia may finally be having an impact on prices. Earlier in July, Saudi Arabia announced an extension of its one million barrels per day (b/d) production cut, initially declared in June, for an additional month through August. Russia also declared its intention to reduce market supply by 500,000 b/d in August. Although these cuts were initially overlooked by the markets, which remained focused on the uncertain global economic conditions, this week witnessed Brent crude, the international benchmark, trading above US$80 per barrel for the first time since late April. Meanwhile, as Saudi Arabia aims to stabilize oil prices around US$90 per barrel, the International Energy Agency (IEA) has warned that production cuts could lead to significant deficits in oil supplies from July, potentially driving prices higher. Analysts expect that oil prices will remain elevated due to recovering demand in China, the US, and other regions and the supply cut by OPEC+.

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