Oil prices rose by more than $1 a barrel on Wednesday after Saudi Arabia and its allies agreed to deepen output cuts from July, as the OPEC+ alliance seeks to prevent a supply glut and prop up prices.
Brent crude futures settled at $75.39 a barrel, up 1.2%, after hitting a session high of $75.62. U.S. West Texas Intermediate (WTI) crude futures settled at $72.71 a barrel, up 1.1%, after hitting a session high of $73.00.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, agreed on Tuesday to extend their production cuts by 1 million barrels per day (bpd) for another six months, until the end of 2023. The group also agreed to review its output policy at its next meeting in December.
The decision to deepen output cuts came as oil prices have been rising in recent months, due to a number of factors, including strong demand from China and the United States. Oil prices have also been supported by concerns about supply disruptions from Iran and Venezuela.
The OPEC+ decision is likely to help to keep oil prices from rising too sharply in the near term. However, the group will need to be mindful of the risk of overshooting its target, which could lead to a price crash.
Here are some of the factors that could affect oil prices in the coming months:
- Demand: The global economy is expected to grow at a moderate pace in 2023, which should support oil demand. However, the pace of economic growth could be slower than expected, which could weigh on oil demand.
- Supply: OPEC+ is expected to continue to comply with its production cuts, which should help to keep oil supplies tight. However, there is always the risk of supply disruptions from Iran and Venezuela.
- Geopolitics: Geopolitical tensions in the Middle East could also affect oil prices. For example, a conflict between Iran and Saudi Arabia could lead to a supply disruption and send oil prices sharply higher.
Overall, oil prices are likely to remain volatile in the coming months. However, the OPEC+ decision to deepen output cuts should help to keep prices from rising too sharply.
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