The long-awaited tightening of global oil markets is underway, with Saudi Arabia’s voluntary 1mn b/d production cuts coinciding with record high oil demand. Saudi Arabia’s decision to extend these cuts into September looks set to produce substantial inventory drawdowns this quarter, and the impact on prices is already evident.

The US EIA states in its latest Short Term Energy Outlook (STEO) that “We expect the production cuts, combined with increasing demand, will cause global oil inventories to fall and to put upward pressure on oil prices through the end of this year.” The EIA now expects Brent prices to average $86/B over the second half of the year as a result of the cuts, up by $7/B from last month’s forecasts. Prices have already topped $85/B (MEES, 11 August). (CONTINUED - 678 WORDS)