Oil drops as optimism over Saudi-led production cuts quickly fade

(Bloomberg) – Oil fell as traders weighed the supply and demand outlook after Saudi Arabia’s surprise commitment to further supply cuts.

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West Texas Intermediate fell below $72 a barrel on Tuesday as a cautious tone pervaded the markets. Futures surged early on Monday after the Saudi announcement after a tense OPEC+ meeting, before giving up most of the gains during the session. The kingdom also raised its crude prices to Asia for July.

Read more: How OPEC’s midnight deals helped Gulf unity win Gulf unity at Africa’s expense

Saudi Arabia has pledged to do “whatever is necessary” to stabilize the market as concerns over the outlook for demand, particularly from China, weigh on prices. Oil fell 11% last month, in part due to resistance from Russian production, although the OPEC+ producer said earlier this year it would cut supply.

The kingdom followed its decision to cut production by 1 million barrels per day in July with an increase in its crude prices for the same month. This is prompting some Asian refiners to consider buying more crude from other suppliers, including Russia and West Africa, according to people familiar with the matter.

The OPEC+ rally reiterates its commitment to stability, but the outcome of the meeting will have minimal impact on the oil market, said Sean Lim, analyst for RHB Investment Bank Bhd in Kuala Lumpur.

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