Oil rises 2% as Saudi Arabia and Russia keep supplies tight

NEW YORK  –Oil prices gained about 2 percent on Thursday as Saudi Arabia and Russia took steps to keep supplies tight into September and possibly beyond.

Brent futures rose $1.94, or 2.3 percent, to settle at $85.14 a barrel, while U.S. West Texas Intermediate crude rose $2.06, or 2.6 percent, to settle at $81.55.

A lack of big price moves in recent weeks has cut Brent’s historic or actual 30-day close-to-close futures volatility to its lowest since February 2022.

In other oil markets, U.S. diesel futures rose about 2 percent to close at their highest since January 2023.

Saudi Arabia said it will extend a voluntary oil output cut of one million barrels per day (bpd) for a third month to include September, adding it could be extended beyond that or deepened.

Saudi production is expected to be around 9 million bpd in September.

Meanwhile Deputy Prime Minister Alexander Novak said Russia would cut oil exports by 300,000 bpd in September.

Those announced cuts follow moves in June by the Organization of the Petroleum Exporting Countries (OPEC) and its allies like Russia, collectively known as OPEC+, to limit oil supply into 2024.

READ: Oil holds near three-month high on signs supply is tightening

OPEC+ ministers will on Friday meet to review the market.

“We expect the (OPEC+) meeting to result in the producers’ group continuing the production cuts initially made at its Oct. 5 meeting, and increased on a voluntary basis at its April 3 and June 4 meetings,” analysts at ClearView Energy Partners, a research firm, said in a note.

Oil demand mixed

Oil prices rose despite concerns that some central banks around the world will keep increasing interest rates to reduce stubborn inflation, which could slow economic growth and reduce oil demand.

In the United States, the number of Americans filing new claims for unemployment benefits rose slightly last week, while layoffs dropped to an 11-month low in July as labor market conditions remain tight. Despite labor market tightness, some analysts said the inflation outlook continues to improve.

READ: US economic growth accelerates in 2nd quarter, weekly jobless claims fall

At the same time, the U.S. services sector slowed in July as businesses faced higher prices for inputs even though demand continued to hold up, suggesting the road to low inflation could be long and slow.

“The ISM (Institute for Supply Management) activity indicators suggest that manufacturing is in recession and service sector output is becoming a little more sluggish,” analysts at ING, a bank, said in a note.

In China, the world’s second biggest oil consumer, the central bank pledged to guide more financial resources towards the private economy, suggesting new urgency from Beijing to bolster confidence as economic momentum weakens.

In the UK, the Bank of England raised its key interest rate by a quarter of a percentage point to a 15-year high of 5.25 percent, its 14th back-to-back increase, and warned that borrowing costs were likely to stay high for some time.

READ: Bank of England raises borrowing costs to 15-year peak, signals rates to stay high

In Europe, a downturn in euro zone business activity worsened more than initially thought in July as the slump in manufacturing was accompanied by a further slowing of growth in the bloc’s dominant services industry.