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Oil fails to hold gains scored after Saudi, Russia announced supply cuts

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Oil futures ended lower Monday, failing to hold gains seen after Saudi Arabia announced it would extend a 1 million barrel-a-day production cut through August and Russia said it would cut exports this month by 500,000 barrels a day.

Price action

  • West Texas Intermediate crude for August delivery
    CL00,
    -0.75%

    CL.1,
    -0.75%

    CLQ23,
    -0.75%

    dropped 85 cents, or 1.2%, to end at $69.79 a barrel on the New York Mercantile Exchange.

  • September Brent crude
    BRN00,
    +0.39%

    BRNU23,
    +0.39%
    ,
    the global benchmark, settled at $74.65 a barrel on ICE Futures Europe, down 76 cents, or 1%.

  • Back on Nymex, August gasoline
    RBQ23,
    -2.61%

    dropped 3.2% to $2.462 a gallon, while August heating oil
    HOQ23,
    -2.30%

    declined 2.9% to $2.377 a gallon.

  • August natural gas
    NGQ23,
    -3.65%

    shed 3.2% to close at $2.709 per million British thermal units.

U.S. markets will be closed Tuesday for the Independence Day holiday.

Market drivers

Crude futures popped higher after Saudi Arabia’s energy ministry said the voluntary cut of 1 million barrels a day that took effect this month would be extended through August, keeping the nation’s output at 9 million barrels a day.

Also Monday, Russian Deputy Prime Minister Alexander Novak said the country would curb exports by 500,000 barrels a day in July, according to news reports, “as part of efforts to ensure oil markets remain balanced.”

Oil rose modestly after the announcements, but it wasn’t enough to prompt a “material rally,” wrote analysts at Sevens Report Research.

Saudi Arabia had announced a voluntary July cut of 1 million barrels a day on June 4 as the Organization of the Petroleum Exporting Countries and its allies agreed to stick with earlier production curbs. Saudi Energy Minister Abdulaziz bin Salman had said the cut could be extended.

Skepticism around Russia was also in play.

“The key question remains as to whether oil prices will buck the recent trend of being unable to maintain their OPEC-related gains,” said Fawad Razaqzada, market analyst at City Index and Forex.com, in a note.

“Every time prices have jumped on the back of supply cuts from the group, traders have sold into that move amid skepticism over the efficacy of these cuts when Russia has consistently produced and sold more oil than agreed,” he wrote. “Will it be different this time?”

The muted market response indicates traders want to see evidence Russia is complying, Razaqzada said.

Oil futures ended Friday with monthly gains but WTI saw a second consecutive quarterly decline — off nearly 7% — and Brent logged a fourth straight quarterly loss — down over 6%.

See: Think the stock market’s 2023 rally is impressive? Don’t forget to zoom out.

Meanwhile, analysts and traders have remained skeptical that Russia has met its pledge earlier this year to cut production by 500,000 barrels a day through year-end.

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