Oil prices surge to 4-month highs after Saudi, Russia output cuts

Oil prices surged Monday to their highest since mid-April, following an attack on a key Russian oil export hub and extended production cuts by OPEC kingpin Saudi Arabia and Russia.

Over the weekend, Ukraine launched a naval drone attack on Russia‘s port of Novorossiysk, a critical hub on the Black Sea for Russian oil exports. Ukraine did not immediately respond to CNBC’s request for comment.

In addition, the world’s top oil exporter Saudi Arabia last Thursday extended its voluntary crude oil output cut of a million barrels per day to the end of September. Saudi Arabia’s million barrel per day cut was implemented in July through to August, and the cut “can be extended or extended and deepened,” the state-owned Saudi Press Agency said last week.

“Now that we’ve seen supplies come off, I think I think we’ll see much higher prices,” said Josh Young, chief investment officer at Bison Interests, an oil and gas investment firm.

Russia, the world’s second largest oil exporter, also pledged Thursday to voluntarily trim oil exports by 300,000 million barrels per day in September.

Global benchmark Brent futures traded slightly below the flatline at $86.17 a barrel — the highest since April 14. U.S. West Texas Intermediate futures dipped 0.1% to $82.74 per barrel, hovering close to mid-April highs.

“I actually think they’re going to be quite volatile,” Young said, adding that prices will be much higher over the next five years.

“We might see all time-highs and prices crash as we go through this dynamic of insufficient supply relative to demand,” he said.

Citi’s Ed Morse was slightly more optimistic about crude oil supplies after September.

Morse, global head of commodity research at the bank, says Saudi Arabia and Russian output is “likely to come back” in October, and that oil prices will hit $90 per barrel at most this quarter.

“We just don’t see demand growth being that spectacular,” Morse said, projecting that there will not be “this huge incremental spurt in Chinese demand.”