Prices Surge as OPEC+ Agree to Extend Production Cut

By Adedapo Adesanya

Oil prices wrapped a sixth weekly gain after oil producers reached a tentative agreement to prolong its record production cuts till July.

Brent crude went back above $40 per barrel as prices rose by $2.08 or 5.20 percent at $42.07 per barrel, while the US West Texas Intermediate crude futures gained $1.56 or 4.17 percent to settle at $38.97 per barrel.

Both benchmarks gained more than 15 percent, lifted by the output cuts and signs of improving fuel demand as countries ease lockdowns imposed to fight the new coronavirus outbreak.

After almost a week of discussions, the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) led by Saudi Arabia and Russia reached a deal with Iraq, the cartel’s second largest producer, over its compliance, paving the way for the agreement’s extension into July instead of cutting them.

The OPEC+ alliance, with this, will keep the current level of cuts for another month and won’t scale back to ease their supply cuts to 7.7 million barrels per day from July.

OPEC will meet at 1 p.m. Nigerian time on Saturday, June 6 followed by a gathering of the wider group later to sign off on the pact, delegates said.

This is good news for the market as demand is quickly returning in the largest importer, China. The country’s oil demand has recovered to 90 percent of pre-pandemic levels.

However, questions remain for many other nations, especially for consumption of diesel, the biggest-selling oil product globally.

Analysts also note that a continuation of crude’s price rally could encourage more American shale producers to bring wells back and lead to more supply that can affect the market’s balance as things look they are returning to normal again after being affected by the COVID-19 pandemic.

Also boosting prices was improved employment numbers in the United States. The unemployment rate unexpectedly fell to 13.3 percent in May, with the return of 2.5 million jobs.

Projections had expected the unemployment rate to jump to around 20 percent. The numbers led to a wave of optimism around economic recovery.