DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures rallied more than 2% on Wednesday, and Brent crude traded on the Intercontinental Exchange settled slightly higher after Saudi Arabia and Russia extended their voluntary production cuts until the end of August in a bid to offset weak industrial demand across advanced economies.

Saudi Energy Ministry Prince Abdulaziz bin Salman said on Monday the kingdom would extend July's production cut of 1 million barrels per day (bpd) through August to support "the stability and balance of oil markets." That will keep the Gulf nation's output at 9 million bpd -- the lowest average production rate since the outbreak of COVID-19 pandemic in March 2020.

"Organization of the Petroleum Exporting Countries along with its partners will do whatever is necessary to support the market. It will not be left unattended," said the Saudi energy minister Wednesday morning at OPEC's annual seminar in Vienna. Meanwhile, Russian Deputy Prime Minister Alexander Novak said his country will cut production and exports by an additional 500,000 bpd in August.

The most recent data published by Bloomberg supports this statement, showing Russian oil exports from the eastern ports of Primorsk and Kozmino declined by almost 700,000 bpd over the final weeks of June, signaling that promised production cuts are indeed taking place.

Along with reductions Saudi Arabia and Russians have already made, and ongoing cuts by other countries in OPEC+, total curtailments will, on paper at least, amount to 3.1 million bpd, or about 3% of global consumption. That is a gigantic curtailment to global supplies, but the output cuts have failed to make any meaningful difference for oil prices, with Brent crude stuck between $70 and $80 per barrel (bbl) since May 1.

The underlying reason behind the market's muted reaction is weak manufacturing data signaling a full-fledged recession in global industrial hubs like China and the United States. Industrial data released earlier this week showed U.S. manufacturing activity slid deeper into contraction last month to the lowest level since May 2020 at 46%. The new data largely reflects companies continuing to reduce output as demand deteriorates and optimism about the second half of 2023 weakens.

Also on Wednesday, oil traders positioned ahead of the releases of weekly U.S. inventory data beginning with preliminary survey from the American Petroleum Institute and followed by official data from the U.S. Energy Information Administration. Both reports are delayed one day this week due to the observance of U.S. Independence Day on Tuesday.

Analysts anticipate U.S. crude oil inventories likely decreased by 1.6 million bbl for the final week of June, with estimates ranging from a drawdown of 3.4 million bbl to a build of 2.2 million bbl. The expectations for a drawdown come despite a U.S. Department of Energy report indicating it disbursed 1.4 million bbl of crude last week from the nation's Strategic Petroleum Reserve. That would bring those emergency crude supplies, already at a 40-year low, to 347.2 million bbl.

Gasoline inventories are expected to have fallen by 900,000 bbl from the previous week, while stocks of distillates, which are mostly diesel fuel, are expected to have risen by 300,000 bbl from the previous week. Refinery use likely was unchanged from the previous week at 92.2% of capacity.

At settlement, NYMEX West Texas Intermediate August futures added $2 per bbl to $71.79 per bbl, and the international crude benchmark Brent contract for September edged up $0.40 to $76.65 per bbl following a $1.60 advance on Tuesday when the U.S. market was closed for Independence Day. NYMEX RBOB August futures advanced $0.0559 to $2.5183 per gallon and the ULSD August contract rallied $0.1160 to $2.4933 per gallon.

Liubov Georges can be reached at liubov.georges@dtn.com