Saudi Arabia extended its unilateral oil production cut by another month, and said it could be prolonged further or even deepened. 

The leader of the Organization of Petroleum Exporting Countries will continue the cutback of 1 million barrels a day — launched last month — into September, according to a statement on state Saudi Press Agency. That will hold output at about 9 million barrels a day, the lowest level in several years. Crude futures jumped. 

The measure — which comes on top of supply curbs Riyadh was already making with others in the OPEC+ producers group — is intended “to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets.” Its ally Russia also said it will extend its export curbs, but taper them slightly.

Eoin Treacy's view

The global oil market has been finely balanced but that is now changing. The USA’s Strategic Reserve is largely empty. As suppliers reduce the availability of crude oil, the ability of alternative sources to boost production is limited. Meanwhile, global economic activity is not falling quick enough to reduce demand to keep the market balanced.

Brent crude dropped sharply yesterday. That prompted action from Saudi Arabia to support the market. The message is clear, they want higher prices and they are willing to do what is necessary to achieve their goals. That suggests crude oil is a buy the small dip market until demand rolls over.

The Energy SPDR continues to firm within its range.