By Adedapo Adesanya
The Brent crude hit the $28 per barrel price region on Monday, opening the first week of production cut in the positive territory and continuing the gains recorded last week after four weeks of declines.
As at last night, the crude futures gained 5.9 percent or $1.58 to sell at $28.02 per barrel, while the West Texas Intermediate (WTI) crude went up by $1.46 or 7.4 percent to trade at $21.24 per barrel.
A 23-country coalition comprising members of the Organisation of the Petroleum Exporting Countries and their allies known as OPEC+ agreed last month to cut output by 9.7 million barrels per day for two months.
The reason for this deal was to offset some of the world’s oil glut, a major market worry, and push prices higher. The market rose to the news.
Between May and June, as much as 9.7 million barrels of oil will not be pumped daily and from July to December, these countries will cut 7.7 million barrels per day and 5.8 million barrels per day from January 2021 to April 2022.
In addition to these, other oil producers who are not part of the coalition but committed to the cuts by extension will also reduce output starting this month.
According to market analysts, voluntary cut in the US., Canada and Norway, along with the OPEC+ will reduce supply by 13 to 15 million daily barrels per day.
Investors are responding positively to the OPEC+ cut as well as the slow removal of the movement restrictions in some countries, allowing workers back to work.
A new development also brewing that may sway the market is a resumption of tensions between the US, the largest producer of oil and China, the largest importer of the commodity. Both nations are at war over the COVID-19 pandemic, which originated from the Chinese city of Wuhan in 2019.
The US is pointing fingers at China over its handling of the coronavirus outbreak, which has grounded a market already facing oversupply, shedding as much as 30 percent in demand compared with levels in 2019 and has plunged many nations in inevitable recession.
An escalation of the tension can bring about a fresh round of trade war, one of which affected oil prices in 2019 until an agreement was eventually reached.
At the moment, that agreement signed in January 2020 may go up in flames as possible retaliation from the American government for China’s handling of the outbreak could add to demand woes for the crude at the worst possible time when a health emergency is on ground.
This is coming at a time when the market has been projected for some level of recovery in the second half of 2020.
Modupe Gbadeyanka