Updated Sep 5, 2023 - Economy

Oil prices hit highest of year as Saudi Arabia and Russia extend supply cuts

Data: FactSet; Chart: Axios Visuals

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.

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.

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