Oil rises as market weighs supply cuts against gloomy economic outlook

LONDON  -Oil prices rose on Tuesday as markets weighed supply cuts for August by top exporters Saudi Arabia and Russia against the backdrop of an uncertain global economic outlook.

Brent crude futures climbed 32 cents, or 0.42 percent, to $75.73 a barrel by 0805 GMT. U.S. West Texas Intermediate crude was at $70.96 a barrel, up 32 cents, or 0.45 percent.

On Monday, Saudi Arabia said it would extend its voluntary output cut of 1 million barrels per day (bpd) to August, while Russia and Algeria volunteered to lower their output and export levels for August by 500,000 bpd and 20,000 bpd respectively.

If fully implemented, that will lead to a combined reduction of 5.36 million bpd versus August 2022 levels – possibly even more as several member countries are unable to fulfil their quotas, said PVM analyst Tamas Varga.

However, oil benchmarks settled down about 1 percent in the previous session, after an initial rally, on the back of a gloomy macroeconomic outlook.

Business surveys have shown a slump in global factory activity because of sluggish demand in China and Europe and U.S. manufacturing also fell further in June – reaching levels last seen in the initial wave of the COVID-19 pandemic.

This broader uncertainty will likely overshadow the OPEC+ effort to tighten supply, some analysts said.

Combined with expectations of higher U.S. interest rates and fears that the U.S. will join the EU in recession, this will continue to weigh on markets, Eurasia Group analysts said.

Despite the best efforts of Saudi Arabia and Russia, said Naeem Aslam, chief investment officer at Zaye Capital Markets, “the days may be over for oil prices to jump back above the 90 price mark, and the prices are more likely to consolidate between the 65 and 70 price ranges.”

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