The oil market climbed about 1 per cent on Wednesday on Saudi Arabia’s plans for a deep output cut and a drop in crude inventories in the world’s largest oil producer, the United States.
At the market session, the price of Brent moved up by 66 cents or 0.9.per cent to $76.95 a barrel, as the US West Texas Intermediate (WTI) appreciated by 79 cents or 1.1% to $72.53 per barrel.
Both benchmarks jumped more than $1 on Monday after Saudi Arabia’s decision over the weekend to reduce output by 1 million barrels per day to 9 million barrels per day in July.
Saudi Arabia is the only member of the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) with sufficient spare capacity and storage to easily reduce and increase output.
It was able to respond rapidly to excess supply that weakened the market in the early stages of the pandemic in 2020 when the group of producers implemented record output cuts.
Support also came as the US Energy Information Administration (EIA) reported an inventory decline of 500,000 barrels for the week to June 9.
This compared with an inventory build of 4.5 million barrels for the previous week, which pushed prices lower.
The EIA said that at 459.2 million barrels, the US crude oil inventories are around 2 per cent below the five-year average for this time of the year.
Prices, however, faltered earlier in the session on weak Chinese economic data as exports in the world’s largest oil importer shrank much faster than expected in May, and imports fell, albeit at a slower pace.
This happened as manufacturers struggled to find demand abroad, and domestic consumption remained sluggish.
Wednesday’s data also showed that crude oil imports into the world’s largest oil importer rose to their third-highest monthly level in May as refiners built up inventories.
Also, supporting prices, the US Dollar dipped as chances faded for a US Federal Reserve rate hike next week.
A weaker greenback helps demand as oil becomes cheaper for foreign buyers.
The Organisation for Economic Cooperation and Development (OECD) also noted that global economic growth would pick up only moderately over the next year as the full effects of central bank rate hikes are felt.
Earlier this week, the Institute for Supply Management reported that the US service sector had contracted to 50.3 in May from a reading of 51.9 for April.
The manufacturing sector has been shrinking for seven months. New orders for the manufacturing sector have risen but only in the defence industry.