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Oil soar on Saudi output cut
Oil prices rally as Saudi Arabia pledges production reduction, while US averts default with debt ceiling legislation
WTI crude futures surge by 4.6% as Saudi Arabia announces output cut
Saudi Arabia to reduce production by 1 million barrels per day from July
Joe Biden signs legislation suspending US debt ceiling, avoiding default
Key US economic data: Factory orders expected to rise, durable goods likely to decline, ISM services index set to improve
What’s happened?
WTI crude futures experienced a notable upswing on Monday, surging by as much as 4.6% to reach approximately $75 per barrel. However, gains were later pared as prices dropped below $74. The surge came in response to Saudi Arabia's announcement of a further reduction in oil output by 1 million barrels per day starting in July. This decision would bring the country's production level down to approximately 9 million barrels per day next month, a level unseen in years. Energy Minister Prince Abdulaziz bin Salman expressed the kingdom's commitment to market stability, stating that he "will do whatever is necessary to bring stability to this market" during a high-stakes OPEC+ meeting held over the weekend.
While Saudi Arabia demonstrated its dedication to stabilizing the oil market, Russia did not make any commitment to further reduce its output. In addition, the United Arab Emirates (UAE) was given permission to increase its output targets for the coming year. These developments have added an element of uncertainty to the future trajectory of oil prices.
In a significant move, Joe Biden signed the debt ceiling bill into law. The Treasury is about to unleash a tsunami of new bonds to refill its coffers, a drain on dwindling liquidity
What to watch?
Investors will closely watch the release of key US economic data. Factory orders for April are expected to show a 0.8% increase, doubling the revised gain from March. However, the final durable goods print is likely to confirm a decline on a month-on-month basis. Additionally, the ISM services index for May is anticipated to rise to 52.4 from the previous month's reading of 51.9. These indicators will provide valuable insights into the health of the US manufacturing and services sectors, which are crucial drivers of the country's economic growth.
