Oil prices hit highest of year as Saudi Arabia and Russia extend supply cuts
- Matt Phillips, author of Axios Markets
Oil prices climbed to their highest level of the year Tuesday.
Why it matters: The rise came after Saudi Arabia and Russia — the second and third largest global producers — announced at 9 a.m. ET that they're both extending their voluntary cuts in oil production through the end of 2023.
- Brent crude, the global benchmark, rose above $90.
- West Texas Intermediate, the U.S. benchmark, rose above $87.
- Both grades are up more than 25% from the lowest levels of the year.
The cuts took roughly 1.3 million barrels per day off the global market.
- The world economy consumes roughly 100 million barrels of oil a day.
Between the lines: The production cuts are mostly about China.
- China is the largest buyer of both Saudi and Russian crude oil — and its struggling economy means it will consume fewer barrels.
- So, to balance supply with weaker demand, Russia and Saudi have decided to extend the surprise cuts they originally announced in April.
Yes, but: The decision to keep the oil market tight also has political implications, as it further links Saudi Arabia — once a stalwart U.S. strategic ally — with American adversaries Russia and China.
What to watch: How much the higher crude oil prices feed through to U.S. gasoline prices — already at the highest level this year — and potentially reinvigorate broader price pressures as well.