WASHINGTON (DTN) -- At the start of the first trading day of the month and the third quarter, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange jumped more than 2% following reports Saudi Arabia and Russia have tentatively agreed to increase production by less than 500,000 barrel per day (bpd) each month from August to December, meaning supplies available to the global oil market will remain tight until the end of the year.
Organization of the Petroleum Exporting Countries, Russia and nine allied partners will meet Thursday via teleconference to decide on production quotas for August and potentially through April 2022. Preliminary reports, citing sources close with negotiations, indicate Saudi Arabia and Russia have reached a deal that includes a monthly increase in joint output of less than 500,000 bpd a month, gradually bringing back around 2 million bpd in shut-in output later this year. If confirmed, investors will see the arrangement as bullish for a quickly tightening global oil market, with the current supply shortfall estimated at 1.5 million bpd. OPEC+ economists forecast the deficit will expand to 2.2 million bpd in the fourth quarter, should the group maintain its policy of gradual production increases.
The 23-nation alliance is currently withholding 5.4 million bpd from the global market, having brought back about 2.1 million bpd of crude output in the first half of the year from 7.5 million bpd in cuts in December. Saudi Arabia in the first quarter volunteered an additional 1 million bpd in a unilateral cut by the kingdom atop of its agreed production quota, further tightening supply availability on the global oil market.
Domestically, there has been a muted response from U.S. shale operators despite oil topping $70 per barrel (bbl), with production stalling near 11 million bpd, about 2 million bpd less than pre-pandemic highs. Scott Sheffield, chief executive of Pioneer Natural Resources, one of the largest shale producers, believes that domestic operators will not increase production even as oil breaks $80 bbl. U.S. crude oil inventories have fallen to about 6% below the five-year average in the final week of June, extending a destocking pattern into a sixth consecutive week.
Further boosting the oil complex, Eurozone's manufacturing sector saw the highest growth on record last month, according to a private survey released overnight, led by growth in output and new orders in the key industrial economies of Germany and France. The headline Purchasing Manufacturing Index posted a fresh record for a fourth successive month at 63.4 in June from May's reading of 63.1. Germany -- the bloc's largest economy, saw manufacturing production rates and new order growth accelerating for the first time in three months. Industry officials did note the manufactured sector continued to be hampered by supply issues, with a lack of available inputs and containers contributing to markedly longer lead times in June.
Next, investors await the Institute of Supply Management's reading on U.S. manufacturing activity in June to be released at 10:00 a.m. ET, with economists forecasting a steady reading of 61.0.
In early trading, NYMEX August West Texas Intermediate jumped above $75 bbl, up more than 2% from Wednesday's settlement, and ICE September Brent crude futures surged $1.50 to trade above $76 bbl. NYMEX August RBOB futures rallied 2.91 cents to $2.2716 gallon, with front-month ULSD futures surging more than 3 cents to $2.1610 gallon.
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