Oil price rises further as production cut begins

Oil prices jumped on Friday, sustaining the gains posted the day before, as major oil producers started cuts in output to buffer crash in fuel demand caused by the COVID-19 pandemic and the U.S. crude storage grew slowly, contrary to expectations.

The July delivery for Brent crude (the benchmark for Nigeria’s oil grades), which began Friday trade as the new month contract, went up by $1.10 cents or 4.2% to $27.58 per barrel at 01:13 West African Time (WAT). It had gained 12% at the previous session.

U.S. West Texas Intermediate crude advanced by $1.37 or 7.3% to $20.21 a barrel, extending the 25% gain posted on Thursday.

As of 12:09 WAT, Nigeria’s banner oil grade, Bonny Light, was trading at $18.96 per barrel, up by $2.45 or 14.84%, according to oilprice.com.

“This is a second straight week of inventory and product demand figures suggesting a bottoming of the U.S. market,” said Stephen Innes of AxiCorp.

Statistics obtained from U.S. Energy Information Administration demonstrated that crude inventories leapt by 9 million barrels to 527.6 million barrels last week, lower than the 10.9 million-barrel increase analysts had projected in a poll conducted by Reuters.

Another positive factor on Friday was the commencement of production cuts agreed between the Organisation of Petroleum Exporting Countries (OPEC) and its Russia-led allies to control falling demand.

“OPEC+ quotas are due to kick in on Friday, suggesting short-term supply conditions have likely peaked,” Innes said.

The deal entails a record output cut in the region of 10 million barrels per day (bpd).

Yet, it is well below the approximately 30 million bpd of demand that has vanished as a result of the coronavirus outbreak as a large portion of the global population remain under lockdown.

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