Oil prices rise on reports Saudi Arabia has said it’ll do ‘whatever necessary’ to support oil

Tensions in the Middle East, following news of an attempt by Iran to seize two oil tankers at the Strait of Hormuz, also provided support to oil prices.

Price action

• West Texas Intermediate crude for August delivery
  CL00,
  +2.89%

  CL.1,
  +2.89%

  CLQ23,
  +2.89%,
  the U.S. benchmark, was up $2.06, or 3%, at $71.85 a barrel on the New York Mercantile Exchange. WTI futures didn’t settle Tuesday due to the holiday.

• September Brent crude
  BRN00,
  +0.46%

  BRNU23,
  +0.46%,
  the global benchmark, was down 20 cents, or 0.3%, at $76.05 a barrel on ICE Futures Europe.

• Back on Nymex, August gasoline
  RBQ23,
  +1.96%
  rose 2.5% to $2.5242 a gallon, while August heating oil
  HOQ23,
  +4.14%
  added 4.8% to $2.4904 a gallon.

• August natural gas
  NGQ23,
  -1.55%
  was down 1.2% at $2.676 per million British thermal units.

Market drivers

The Saudis said they were going do whatever it takes to support oil prices “and the fact that we got a commitment from Russia to do a voluntary additional 500,000 barrel a day production cut gave the market initial bounce” on Wednesday, Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.

At the Organization of the Petroleum Exporting Countries’ international seminar, which ends on Wednesday, Prince Abdulaziz said OPEC+, which is made up of OPEC and its allies, will do “whatever necessary” to support the oil market, Reuters reported Wednesday.

Saudi Arabia had announced Monday it would extend a July production cut of 1 million barrels a day through August, while Russia said it would cut exports by 500,000 barrels a day.

Drama in the Strait of Hormuz, meanwhile, “reminded us that it’s probably not a very good idea” that the U.S. has tapped into its Strategic Petroleum Reserve — so it has less emergency supplies “if there’s actually a real emergency,” Flynn said.

Iran attempted to seize two oil tankers near the Strait of Hormuz and fired shots at one of them, CBS News reported, citing a U.S. Navy spokesman. In both cases, the Iranian naval vessels backed away after the U.S. Navy responded. The Energy Information Administration refers to the Strait of Hormuz, located between Oman and Iran, as the world’s “most important oil transit chokepoint.”

The drama in the Strait of Hormuz adds to concerns that in the second-half of the year, if we don’t get a recession, “supplies are going to be very tight,” said Flynn.

News of Saudi Arabia’s extension of its voluntary cut beyond July, through August, had a “limited market impact” as the original July reduction only totaled 30 million barrels of supply, which is less than one-third of an average day’s global demand, analysts at Sevens Report Research wrote in Wednesday’s newsletter.

That’s a “a drop in the proverbial global oil barrel,” they said.

Global benchmark Brent oil prices had been trading lower early Wednesday after a weak reading on service-sector activity in China, one of the world’s largest consumers of crude.

Survey results released Wednesday showed services sector activity in China was slower than expected in June, adding to fears the country’s rebound from the COVID lockdown last year remains lackluster. That dulled prospects for energy demand.