Sunday, July 12, 2020
banner
Home /  Business  /  Crude oil prices climb as OPEC+ considers output cut extension

Crude oil prices climb as OPEC+ considers output cut extension

Crude oil prices climb as OPEC+ 
considers output cut extension

Agencies
LONDON
Oil price rose past $36 a barrel as investors eyed a potential extension of record production curbs by OPEC+ while physical markets showed renewed signs of tightness.
Futures in New York rose around 2.7 percent as Russia and several producers in the Organisation of Petroleum Exporting Countries (OPEC) and its allies are said to favour an extension of one month to existing cuts, with consensus building toward that length within the group, according to three delegates.
It was unclear whether OPEC’s key power, Saudi Arabia, had agreed to the suggestion, with the kingdom supporting an additional one to three months of curbs.
Crude is rallying as the market for real barrels of crude is showing renewed signs of strength too. The bearish structure in the nearest futures contracts has disappeared, signaling tighter supplies. Russian Urals crude was bid last week at the highest level as the nation accelerates record output cuts.
The OPEC+ discussions are happening against what’s still a very uncertain demand backdrop. Tankers idling off the Chinese coast waiting to unload are evidence of the Asian giant’s rapid recovery but in other parts of the world, the rebound is uneven.
“It seems Russia is happy with current prices and believes in a faster re-balancing of the oil market than some OPEC members,” says UBS analyst Giovanni Staunovo.
West Texas Intermediate for July delivery rose 2.7 percent to $36.40 a barrel in London.
Brent for August delivery climbed 2.9 percent to $39.43 a barrel.
OPEC’s delivery of the production cutbacks last month, while strong overall, was undermined by its habitual laggards, suggesting the deal with be tough to enforce if prices keep rising. The group implemented around three-quarters of the cuts pledged in May, but Iraq and Nigeria executed less than half of their agreed reductions.
Russia came close to hitting its OPEC+ target ahead of the OPEC+ meeting, with the nation pumping 9.388 million barrels a day in May. Exports of the nation’s Urals crude by sea will hit their lowest level in five years in June.
There’s also the risk that as prices rise, shale drillers will bring supplies back online. Parsley Energy will return most of its curtailed output in early June, the company said in a presentation.
“It will be a question of how much price gains do you really want with the risk of the return of US shale oil,” Petromatrix GmbH Managing Director Olivier Jakob said.
An extension could push oil prices to $40, but there would have to be a follow-through on that commitment to sustain higher prices, an oil market expert said.
A drop in crude stockpiles at Cushing, Oklahoma, which fell to 54.3 million barrels in the week to May 29, also buoyed prices, traders said, citing a Genscape report on Monday.
Price gains have been capped by trade tension between China and the United States over Beijing’s security legislation in Hong Kong, as well as manufacturing data on Monday showing the world’s factories were still struggling.

Pages