Oil Prices Surge As Major Producers Tighten Their Grips

Oil prices have witnessed a sharp increase for two weeks consecutively, hitting their peak for the year.

by Faruk Imamovic
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Oil Prices Surge As Major Producers Tighten Their Grips
© Getty Images News/David McNew

Oil prices have witnessed a sharp increase for two weeks consecutively, hitting their peak for the year. This surge is attributed to the momentous decision by the world's paramount oil producers, notably Saudi Arabia and Russia, to maintain their curtailed production levels.

A Rally Beyond Borders

Both the London and US markets have felt the ripple effects of this strategic move. In London, the barrel price has surged by 2.4 percent over the past week, touching $90.65, marking its highest since the preceding November.

Meanwhile, its American counterpart saw a 2.9 percent rise, setting a new record at $87.50 per barrel—the loftiest it's been since September of the previous year. Such a pronounced upward trajectory can be traced back to Saudi Arabia's startling announcement of slashing its production by a whopping 1 million barrels each day by the year's end.

This took many traders off-guard, as they had only anticipated a production cut extension till October's conclusion. Russia, not one to be left behind, declared a daily cutback of 300,000 barrels in its oil exports that will persist until year-end.

Both nations have a unified objective: to uphold lofty oil prices in light of dwindling global demand, a consequence of the decelerating momentum in the world's most expansive economies.

Traders' Hopes Dashed

Many had their eyes on China, anticipating a surge in oil demand following the relaxation of pandemic-induced restrictions earlier this year.

Nevertheless, the recuperation pace of this global economic behemoth, grappling with the aftermath of the pandemic, has fallen short of expectations. Coupled with this, the Western economies are also facing headwinds. The key reason? Central banks have steadily amplified interest rates over the past eighteen months to reign in inflation.

"Given the foreseeable dip in oil demand, the choices made by the leading producers to curtail production to buttress prices makes complete sense," assert market analysts. To give perspective on this escalating trend, current oil prices have now surpassed their starting point at the year's onset.

The London market has seen an over 5 percent leap since the beginning of the year, while its US counterpart boasts an almost 9 percent ascent.

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