Coronavirus impact: Oil tops $42 as Opec+ vows better compliance
Dubai - 'There is enthusiasm in the market that oil supply is still under control'
Oil prices pushed higher past $42 a barrel on Friday, building on gains in the previous session, after Opec producers and allies promised to meet their supply cut commitments and two major oil traders said demand was recovering well.
Iraq and Kazakhstan, during a meeting of an Opec+ panel on Thursday, pledged to comply better with oil cuts. This means curbs by the Opec+, could deepen in July.
Market analysts said if the laggard producers do compensate over the next three months for their over production, that will effectively take extra barrels out of the market, even if Opec+ does not extend its record 9.7 million barrels per day supply cut beyond July.
Comments from global oil traders Vitol and Trafigura on a rebound in oil demand in June also buoyed the market, ANZ Research said.
Trading volumes on Friday, however, were thin, which pointed to a lack of conviction behind any big push higher, said CMC Markets chief strategist Michael McCarthy.
"There is enthusiasm in the market that oil supply is still under control," said Paola Rodriguez Masiu, analyst at Rystad Energy. "A positive OPEC+ meeting does that and yesterday's session helped renew confidence."
Masiu said Opec+ seemed serious about it, pointed the finger to specific countries, which either already have a plan to meet their commitments or are required to present one next week,
Brent crude rose $1.03, or 2.5 per cent, to $42.54 by 09.45 GMT, the highest since June 8. US West Texas Intermediate (WTI) crude climbed $1.17, or 3three per cent, to $40.01.
"The key takeaway is that Opec+ compliance will improve in the coming months," said Stephen Brennock of broker PVM.
Both contracts rose about two per cent on Thursday and are heading for weekly gains of more than nine per cent.
Brent has more than doubled since hitting a 21-year low in April, helped by record Opec+ supply cuts of 9.7 million barrels per day (bpd), or 10 per cent of world demand, and an easing of government lockdowns imposed to control the coronavirus.
In May 2020, the total global oil production amounted to 89.89 million barrels per day, marking a daily decrease of 10.04 million barrels compared to April 2020, according to Opec data.
Oil prices surged last month after dropping in the first quarter to its lowest levels since 2003, which encouraged the Opec+, to cut production further, especially with the decline of oil demand by major consumer countries.
The production of Opec members declined by 6.3 million barrels per day in May while other cuts were made by Russia, the US, Kazakhstan, Oman, Canada, Azerbaijan, Norway and Mexico, as per Opec's monthly report on oil market activity.
Meanwhile, the head of Russia's sovereign wealth fund Kirill Dmitriev said there was no point in extending strict global oil output cuts as world economies and oil demand recovers from the depths of the coronavirus crisis.
The comments from Dmitriev, who is one of Moscow's top negotiators in oil talks, indicate that Russia wants curbs to be eased from August as envisaged by the existing plan.
Fuel demand in Europe is staging a gradual recovery after the height of the lockdowns in April but remains well below normal, data from several countries shows.
In a further sign of market recovery, Brent on Thursday moved into backwardation, where oil for immediate delivery costs more than supply later, for the first time since March.
The existing Opec+ plans calls for the cuts to fall to 7.7 million bpd from August and stay at that level until December. It then envisages further cuts, easing to 5.8 million bpd from January 2021 through April 2022 when the pact is due to expire.