By Adedapo Adesanya
Despite recording five straight weekly gains last week and achieving an 88 percent rise last month, oil prices are still yet to return to their pre-pandemic levels.
However, this week prices will be decided by a number of factors.
The month of June marks the second month of the implementation of the record cuts signed by members of the Organisation of the Petroleum Exporting Countries (OPEC) and its allies known as OPEC+. It is also a month where producers will meet to decide on the next step in the supply reduction action.
There have been discussions on extending the current level of cuts till the end of the year, but there are worries about Russia’s commitment to deeper output cap than agreed. Oil producers are expected to meet on June 9.
But producers are now mulling the possibility of meeting as soon as this week to discuss whether to extend record production cuts beyond end-June.
Algeria, which currently holds the OPEC presidency, has proposed an OPEC+ meeting planned for June 9-10 be brought forward to facilitate oil sales for countries such as Saudi Arabia, Iraq and Kuwait. Russia has no objection to the meeting being brought forward to June 4.
Last week, Russian Energy Minister, Mr Alexander Novak, met with domestic major oil companies to discuss the implementation of global oil production curbs and the possible extension of the current level of cuts beyond June.
This news actually comes as no surprise because in the past, traders have always had to question Russia’s commitment to any proposed deal. Historically, Russia has been the last major producer to approve production cuts.
Another big reason that will heavily impact on prices this week is the continued tension between the United States and China over plans to impose security laws on Hong Kong by China and the possibility of sanctions from the US.
Last week, President Donald Trump signaled no changes to the trade deal with China despite rising tensions.
During a news conference, Mr Trump said he would take action to eliminate special treatment towards Hong Kong. However, he did not indicate the US would pull out of the phase one trade agreement reached with China earlier this year, easing trader concerns for the time being.
Analysts believe that China wants to get its economy back on track and won’t do anything drastic that could derail its recovery, but could as well turn its backs on Phase One of the trade deal.
Sanctions by the US and a retaliation by China could create similar conditions to a trade war. This won’t be good for the global economy especially at a time when it’s just starting to recover from the damage cause by the coronavirus pandemic.
This week, if the tensions between the two heavyweights continue to worsen over the near-term, then this could raise enough uncertainty to encourage crude oil traders to profits and take to the sidelines on fresh worries over future demand which they didn’t do last week.
Traders are also keeping an eye on riots that happened in the United States over the weekend, which have engulfed major cities, leading to the destruction of many business establishments.
The prospect of an extension of curbs by OPEC+ will also help improve crude oil prices because additional reductions in supply will help sustain the rebound in consumption and will help oil to keep rallying.
However, the market has opened this week with both futures pointing south with the Brent Crude trading at $37.76 per barrel while the WTI was down at $35.39 per barrel.
Dipo Olowookere