WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange climbed to fresh 2023 highs on Tuesday, sending the international crude benchmark above $90 bbl after Saudi Arabia and Russia announced a three-month extension of the steepest production and exports cuts made in years, risking overtightening the global oil market in the fourth quarter.
Saudi Arabia delivered another bullish surprise to the oil market Tuesday by announcing an ongoing unilateral production cut of 1 million bpd would be extended through the end of the year. The reduction was first introduced in June for only July and has subsequently been rolled over through the fourth quarter in coordination with Russia and other partners within the OPEC+ coalition.
Russian Energy Minister Alexander Novak said Tuesday Moscow would extend for another three months through the end of 2023 a 300,000-bpd reduction to oil exports, with the cut in exports tapered down from July and August when it was 500,000 bpd.
Macroeconomic uncertainty in Asia and Europe has complicated the outlook for oil consumption through the remainder of 2023, as business activity in the European Union and China's service sector deteriorated again in August. Business surveys released overnight show European indexes sliding into deeper contraction at 46.7 last month, with 50 separating expansion from contraction.
Defending oil prices has come at a cost for both Saudis and Russians, with both countries increasingly losing market share to competitors in the Middle East and Atlantic basin. Iran, for instance, is aggressively raising its sanctioned crude oil exports to China, taking advantage of steep discounts against Brent and the Saudi benchmark Arab Light. Tehran reportedly delivered more than 1.5 million bpd of oil to China last month -- the highest daily average export rate since at least 2013. Iran's oil production is estimated to have climbed above 3 million bpd in recent months, clawing back output losses following tough enforcement of sanctions under the Trump administration. Iranian oil production is still down some 800,000 bpd below 2018, the year when the Trump administration introduced new sanctions on Iranian oil exports and other endeavors, and strongly policed the sanctions.
In comparison, the Biden administration has been lax about sanctions enforcement on Iran in an effort to lower oil prices in the aftermath of Russia's invasion of Ukraine in February 2022. Additionally, the Biden administration has reportedly drafted a proposal to lift oil sanctions on Venezuela, also under U.S. sanctions, in exchange for the restart of democratic processes in the Latin American country of 28 million. Venezuela's oil production plunged to 450,000 bpd at its low in 2020 before recovering to about 800,000 bpd over the June-July period.
On the session, WTI October futures on NYMEX jumped $1.14 to the highest settlement so far this year at $86.69 bbl and Brent for November delivery advanced to $90.04 bbl, up $1.04. NYMEX RBOB October futures slipped $0.0102 to $2.5810 gallon and NYMEX ULSD October futures rallied $0.1146 to $3.2196 gallon.
Liubov Georges can be reached at Liubov.Georges@dtn.com