Crude oil prices rose to their highest level this year Tuesday as the world’s second- and third-largest oil producers jointly agreed to cap output, a bad omen for gasoline prices as Americans enjoy a lengthy reprieve from the historically high prices at the pump experienced last year.
Saudi Arabia will cut oil production by 1 million barrels per day through December, while Russia will reduce output by 300,000 barrels per day.
Future prices for the commodity subsequently shot up as supply shrank—the international benchmark Brent crude rose 1.6% to $89 per barrel by 3 p.m. Eastern time and U.S. benchmark West Texas Intermediate crude climbed 1.2% to $87 per barrel.
Brent touched its highest level since November 18, 2022 on Tuesday and West Texas Intermediate hit its priciest mark since November 15, 2022.
Energy stocks largely rose thanks to the rise in oil prices, as the S&P 500’s energy index’s 1% gain made it the biggest winner of the S&P’s 11 sectors Tuesday, climbing to a eight-month high.
Goldman Sachs economist Daan Struyven wrote Monday his historical analysis supports the notion the OPEC+ group encompassing Russia, Saudi Arabia and other non-U.S. oil titans will keep “lower supply for longer,” setting a $93 per barrel 12-month price target for Brent, implying 4% upside.
Solita Marcelli, chief investment officer Americas for UBS Global Wealth Management, wrote to clients Tuesday she has a “most preferred” view on oil globally, projecting Brent to jump 6% to $95 per barrel and WTI to climb 5% to $91 per barrel by year’s end.
“It looks like the Saudis and Russians are on the same page about keeping the oil market tight,” summarized Oanda analyst Edward Moya.
The U.S. is the largest oil producer in the world, followed by Saudi Arabia, Russia, Canada and China, according to the Energy Information Administration. Brent is up 25% over the last three months and up more than 100% since its 2020 nadir due to the Covid-19 pandemic’s impact on travel. Oil prices remain down considerably from their multiyear peaks reached last year after Russia moved into Ukraine, upending global oil markets after a U.S.-led coalition announced they intended to stop Russian oil imports.
What To Watch For
If gas prices rise noticeably as crude oil prices soar, a strong likelihood considering crude prices largely determine the price American drivers pay at the pump. U.S. gas prices climbed over $5 per gallon for the first time ever last year, but were about $3.81 Tuesday, per AAA data. The decrease in gas prices has been among the chief reasons inflation has moderated over the past year.