By Adedapo Adesanya
Brent Crude continued its climb on Monday, edging closer to the $40 levels as a result of development from the Organisation of the Petroleum Exporting Countries (OPEC) and Russia as well as growing friction between the United States and China.
Yesterday, the Brent Crude, which is the international benchmark, rose by 67 cents or 1.77 percent to trade at $38.51 per barrel, while the US benchmark, the West Texas Intermediate (WTI), moved up 7 cents or 0.2 percent to sell at $35.56 per barrel.
Prices found a support after news that OPEC+ was moving closer to a compromise on extending oil output cuts and was discussing rolling over the curbs by one to two months.
The cartel and its allies may bring their next meeting forward to Thursday to discuss prolonging production curbs by one to three months, according to a delegate.
The existing agreement calls for easing cuts that sees as much as 10 percent of global output reduced from July, a plan Russia would prefer to stick to as the country usually does when it comes to cutting outputs.
Algeria, which holds the rotating OPEC presidency, has proposed that OPEC+ hold a meeting on June 4 rather than the previously planned June 9-10.
OPEC+ and its allies will decide as soon as this week whether or not to extend their historic output curbs. However, the question of how long and to what extent global production reduction remain in place will be crucial to sustaining crude’s rally after a record rebound last month.
So far, the production caps have been effective. Crude rallied almost 90 percent in May, the best month so far this year – a record gain, as shrinking supplies helped to offset pandemic-related demand losses.
Yet, the rally depends on producers maintaining cuts until the crude surplus that has poured into the world’s storage tanks is mopped up. Higher prices could tempt producers to turn back on the taps, undercutting gains.
It is also believed that an earlier OPEC+ meeting would give the producer group more flexibility to change its current production limits as members usually decide their plans for shipping oil for July in the first week of June. The group prefers to take short-term measures on cuts as the situation is changing quickly.
On the US-China front, traders will be observing cautions after China warned of retaliation on US moves over Hong Kong.
China has asked its state-owned firms to halt purchases of soybeans and pork from the United States after Washington said it would eliminate special US treatment for Hong Kong to punish China.
The possibility of heightened tensions has proven in the past to pose a risk to the oil market and now for the recent rally in oil prices.
Dipo Olowookere