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Oil prices climb on hope of output cuts retention, Bonny Light adds 3.70%

Oil prices rise as OPEC, allies agree deal to cut output by 10m barrels/day

Oil prices edged up on Tuesday on traders’ expectation that major oil-producing economies would consent to retain their hefty production cuts to strengthen prices at an online conference timed to hold this week.

Brent crude futures climbed to $38.68 per barrel at 07:30 West African Time, up by 0.94% or 36 cents.

West Texas Intermediate (WTI) crude futures advanced to $35.70 a barrel, notching up 0.73% or 26 cents.

Meanwhile, Nigeria’s Bonny Light crude bucked market trend at the Monday session to post a 3.70% or $1.28 appreciation, closing at $35.89 per barrel.

Benchmark Brent has increased by more than 100% in last month and a half by reason of slash in production by the Organisation of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a league christened “OPEC+.”

The prices of the two benchmarks – Brent and WTI – are still down by 40% year to date.

Vivek Dhar, commodities analyst at Commonwealth Bank, said “the whole story is very much based around the supply cuts and the demand recovery.”

OPEC+ members are mulling the prospect of pursuing their grand 10% global output cut or 9.7 million barrels per day (bpd) beyond the current deadline into July or August at the virtual talk that could hold on 4th June.

“Most likely, OPEC+ could extend current cuts until Sept. 1, with a meeting set before then to decide on next steps,” said Edward Morse, who heads commodities research at American multinational investment bank, Citigroup Inc.

Read also: Oil prices slide as traders become wary of upcoming OPEC meeting

The historic crude supply reduction was to last from May through June followed a smaller plan of 7.7 million bpd would be adopted for the second half of the year, according to the current production cut deal which took effect in April.

World’s biggest oil exporter, Saudi Arabia, has been in the vanguard of extension of the current bigger cuts, sources told Reuters last week.

“Russia will be the key obstacle in any extension, and they are unlikely to agree on any extension which goes beyond a couple of months,” Dutch bank ING’s analysts said.

Retaining the current cuts could ramp up prices to $40 but it is imperative to enforce compliance in order to keep prices higher, said Commonwealth Bank’s Dhar.

A decline in oil inventories at Cushing, Oklahoma, which dropped to 54.3 million barrels in the week to 29th May, also helped prices, traders said citing a report by Genscape on Monday.

A Reuters poll conducted before last week demonstrated that the entire U.S. oil storage possibly increased last week.

Conflict between the U.S. and China concerning Beijing’s security laws in Hong Kong together with manufacturing data on Monday, indicating that factories around the world were still struggling, have limited gains.


Ronald Adamolekun

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Ronald Adamolekun

Ronald Adamolekun is a creative writer with a mixed bag of experience in fields as diverse as data journalism, financial reporting and editing.

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