Oil advanced at the week's open after Saudi Arabia pledged to shave an extra one million barrels-a-day from its production in July, taking output to the lowest level in years in an effort to stabilize the market.

West Texas Intermediate jumped almost five per cent early in the session before paring gains to trade around US$73 a barrel with similar directional moves for international marker Brent. Saudi Energy Minister Prince Abdulaziz bin Salman said he would do “whatever is necessary to bring stability to this market,” following a tense OPEC+ meeting over the weekend.

Oil in New York tumbled 11 per cent last month as demand concerns, especially in China, sapped confidence. Most market watchers had expected OPEC+ to keep output unchanged, including Goldman Sachs Group Inc., whose analysts forecast major producers holding steady. The outcome was “moderately bullish,” the bank said after the gathering in Vienna.    

“OPEC+ — namely Saudi Arabia — wants to establish a floor under the market and they may have achieved that,” said Ole Hansen, Saxo Bank's head of commodity strategy. Still, “the upside potential from this cut remains unclear as long as the macroeconomic outlook remains as uncertain as it currently is.” 

The move left the kingdom potentially sacrificing further market share to stabilize prices. Against that, others in the group pledged to maintain existing cuts until the end of 2024, though Russia made no commitment to curb output further and the United Arab Emirates secured a higher production quota for next year.

The OPEC+ deal came after a dispute with African members over how their cuts are measured, which delayed the start of the meeting. Next month's additional cut could be extended, but the Saudis will keep the market “in suspense” about whether this will happen, Prince Abdulaziz said.

The minister has repeatedly singled out bears in the futures markets, warning them to “watch out” in the buildup to Sunday's meeting.

“Saudi Arabia would ideally want prices to be above US$80 a barrel,” Vandana Hari, the founder of Vanda Insights in Singapore, said on Bloomberg television, referring to Brent. But if the health of the global economy falters, the short-sellers “will be back in no time,” she said.

Prices:

• WTI for July delivery rose US$1.33 to US$73.07 a barrel as of 11:56 a.m. in London.
• Brent for August settlement advanced US$1.34 to US$77.47.