SINGAPORE (Reuters) – Oil soared on Monday after major manufacturers agreed to extend a record production cut deal until late July and when China’s crude imports peaked in May.
FILE PHOTO: A worker at an oil field owned by Bashneft, Bashkortostan, Russia, in this photo January 28, 201
Brent crude oil LCOc1 increased by 51 cents, or 1.2%, to $ 42.81 per share. Barrel at 0628 GMT while U.S. West Texas Intermediate (WTI) crude CLc1 rose 32 cents or 0.8% to $ 39.87 per share. Barrel.
Both hit their highest since March 6 earlier in the session at $ 43.41 and $ 40.44, respectively.
Brent has almost doubled since the Organization for Petroleum Exporting Countries (OPEC), Russia and allies – collectively known as OPEC + – agreed in April to reduce supply by 9.7 million barrels per tonne. Day (bpd) in May-June to suggest prices that collapsed due to the coronavirus crisis.
On Saturday, OPEC + decided to extend the deal to pull nearly 10% of global supplies out of the market by a third month to the end of July. Following the expansion, Saudi Arabia’s top exporter hiked its monthly crude prices for July.
But Howie Lee, an economist at the Singapore bank OCBC, noted that the latest deal was under short hopes of a three-month extension of production cuts.
He said both benchmarks would require stronger bullish factors to propel prices back to where they were before March 6, when they crashed after OPEC and Russia initially failed to agree on supply cuts.
“It’s a big hole there. You need a strong conviction to go from $ 43 to pre-crunch levels, ”Lee said, referring to Brent being over $ 50 before the March crash.
Low prices have drawn Chinese buyers to increase imports. Purchases of the world’s largest crude importer rose to an all-time high of 11.3 million bd per May.
However, the OPEC + shift to extend the cuts to July is expected to lead to a supply deficit in October, which helps prices in the longer term, OCBC’s Lee added.
COMPLIANCE WITH CONDITIONS
Market participants are now seeing compliance by OPEC members such as Iraq and Nigeria, which exceeded production quotas in May and June, to have trading signs, analysts said.
Libya’s supply could also rise soon, as two major oil fields have reopened after months of a blockade that closed most of the country’s production.
“The potential return on Libyan production can also present significant challenges for OPEC management,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.
Even when oil prices are recovered, they are still well below the cost of most US shale producers, leading to shutdowns, layoffs and cost savings in the world’s largest producer.
The number of US oil and natural gas installations fell to a record low for a fifth consecutive week in the week to June 5, according to data from Baker Hughes Co. (BKR.N).
Nearly 30% of the U.S. offshore oil production was also shut down on Friday as tropical storm Cristobal entered the Gulf of Mexico. The storm weakened into a tropical depression Monday morning.
Higher oil prices could invite supply reintroduction, especially the US slate scheduled for closure in June and July, BNP Paribas’ Harry Tchilingurian said.
“OPEC + is facing a Catch-22 situation,” he said.
“Resuming production … may modify the pace of oil market rebalancing.”
Reporting by Florence Tan; Editing by Himani Sarkar and Kenneth Maxwell