Adedapo Adesanya
By Adedapo Adesanya
Oil futures are expected to trade higher this week after the Organisation of the Petroleum Exporting Countries (OPEC), Russia, and other allies agreed on Saturday to extend record oil production cuts until the end of July.
This will prolong a deal that has helped crude prices double in the past two months by withdrawing almost 10 percent of global supplies from the market.
Both benchmarks gained almost 18 percent last week, lifted by news of the output cuts extension and signs that fuel demand has increased over countries easing lockdowns.
Following a week of discussions, OPEC and its allies (OPEC+) reached a deal to extend cuts into July instead of the earlier May and June.
With this new deal, oil producers will keep current level of cuts for another month after countries like Nigeria and Iraq pledged to meet and make up for not meeting compliance in the previous month. They have agreed to compensate the group with extra cuts in July to September.
This, coupled with the return of demand for the commodity, is expected to keep prices at their $40 plus levels in the week.
Another pointer that could push up prices is the emergence of a tropical storm called Cristobal. It is already driving prices of petrol up in the United States and could push prices even higher, depending on the damage to facilities it causes.
US Energy companies on Friday evacuated 10 percent of production platforms and shut nearly 30 percent of offshore oil output, and this pushed prices higher as Tropical Storm Cristobal entered the US Gulf of Mexico.
According to reports, operators evacuated 65 offshore facilities and moved seven drill rigs out of the storm’s path. This took out 544,814 barrels per day of oil.
Last week, the US Energy Information Administration (EIA) reported alarmingly high inventories. So, shutting down these facilities may help tackle the oversupply condition, but it may not show up in the government report for over a week. However, traders may consider this to be a good thing.
Price for the international benchmark, the Brent crude, is expected to circle around $43 per barrel from the new OPEC+ production cuts extension. However, analysts point out that traders are going to start looking for signs of increasing demand.
In the US, with the Tropical Storm Cristobal already driving up fuel prices and could push prices even higher. It all depends on where it hits the US and how much damage to production facilities it causes if any. This will also determine the length of any extended shutdowns. The West Texas Intermediate (WTI) crude is expected to trade at $40 per barrel this week, a level last recorded in March.
The market on Monday has, however, opened with expectations as Brent crude, at the time of filing this report was up 1.32 percent at $42.85 per barrel and the WTI crude was up 1.14 percent at $40.00 per barrel.
