Crude oil prices finished with a weekly gain of about 10% on Friday, as the sudden drop in U.S. production output of crude oil, along with OPEC output cuts, offers hope that the oil glut in the market will reduce significantly.
International benchmark, Brent crude closed at $42.20 for a 9.5% weekly gain, after it opened on Monday at $38.80 a barrel. West Texas Intermediate (WTI) also finished the week on a good note, as it closed at $39.98 a barrel with an 11% weekly increase, after starting the week at $36.03 per barrel.
Crude oil received an unusual catalyst from OPEC and its major allies who complied with the production cut agreement, though some oil traders and experts warned that the bullish momentum might run out of steam.
Understanding Brent Crude: Brent crude is the leading global benchmark for Atlantic basin crude oils. The international benchmark is used to set the price of about two-thirds of the world’s traded crude oil, including Nigeria’s crude.
With OPEC+ compliance, presently at about 87% for May, member countries are taking measures to reduce oil glut and boost compliance.
However, major oil producers guilty of overproducing, which include Nigeria and Angola, will need to submit plans for compliance with the production cut agreement by June 22, according to the Joint Ministerial Monitoring Committee tasked with monitoring the OPEC+ production cut accord.
A prolonged rally above the $40 level “will be difficult for WTI crude as restrictions are not going away anytime soon… so oil prices at best might have another dollar or two to climb higher,” said Edward Moya at Oanda.
Meanwhile, oil traders have flagged the start of hurricane season as a potential headwind for crude oil prices.
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“Hurricane season is yet another variable that could tip the tenuous recovery of the oil market back into more bearish pricing territory,” Erika Coombs at BTU Analytics said.
Oil prices slump over prolonged COVID-19 restrictions, Libya resumes production
Oil traders are panicky over the potential hit on oil prices following higher output in Libya.
Crude oil prices slumped on Monday over increasing concerns over prolonged coronavirus restrictions and the resumption of oil production by Libya’s National Oil Corporation (NOC) from certain fields and some exports of crude oil.
The oil company added that it will only restart production at safe fields and exports from safe ports.
The American headline crude, the WTI declined by about 5% to $39 per barrel while the Brent crude declined by 4.13% to $41.37 per barrel.
Oil traders are panicky over the potential hit on oil prices following higher output in Libya as it resumes production
NOC’s Chairman, Mustapha Sanalla, “Our main concern is to start production and exports taking into account the safety of workers and operations, as well as to prevent any attempts to politicize the national oil sector, which means that the NOC is doing its technical and non-political mission to resume operations in the safe areas and technical evaluation is underway in preparation for the start of production and exports.”
The company said the force majeure will be lifted from fields and ports that are free of the presence of paramilitary groups and mercenaries but remain in effect for those where there are still such groups, which will disrupt the work of NOC.
The head of the Libyan National Army, General Khalifa Haftar, whose troops, with assistance from other affiliated groups, shut Libya’s oil ports in January, announced the end of the blockade on Friday. This was on the same day, NOC’s Sanalla disclosed that the force majeure will only be lifted from facilities after they are demilitarized.
The blockade by the military had driven down the oil production in Libya to the current 100,000 barrels per day as against the 1.2 million barrel per day at the beginning of the year.
This latest development is likely to reverse the improvement in oil prices that followed the latest meeting of OPEC+, which gave a glimmer of hope for supply, if not demand.
Crude oil prices post gains, OPEC+ warns overproducers
Both crude oil benchmarks remained above the $40-mark.
Crude oil prices rallied higher at most parts of Asia’s trading session on Friday. The recent price surge in crude oil prices is coming as OPEC+ concluded its meeting yesterday, with a stern warning to its overproducing members and energy speculators.
What we know: At the time this report was written Brent crude prices gained 0.81% to $43.65 and WTI futures were up 0.76% to $41.29. Both crude oil benchmarks remained above the $40-mark.
Why Oil prices are rallying up? OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting held on Thursday, revealed that OPEC+ members agreed to obey the 7.7 million barrels per day production cuts agreed on in the month of July.
In addition, Saudi’s Energy Minister, Prince Abdulaziz bin Salman, sent an unusually stern warning to both overproducing members (the United Arab Emirates in particular) and energy price speculators.
“Using tactics to over-produce and hide non-compliance have been tried many times in the past, and always end in failure,” Prince Abdulaziz said at the opening session of the OPEC+ committee that monitors the output cuts.
In an explanatory note, Stephen Innes, Chief Global Market Strategist at AxiCorp gave the following insights on Saudi’s battle against overproducing members:
Oil prices recovered after Saudi Arabia threw down the compliance gauntlet, publicly raking laggards over the coal and firing lightning bolts at short-sellers.
In a week where oil price fragilities were exposed after traders digested a combination of gloomy agency short-term forecasts, it was Saudi Arabia throwing down the gauntlet, publicly raking laggards over the coal while emphatically calling for OPEC+ members to meet their quotas that gushed oil prices to their most massive three -day advance since May.
During the OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting, Saudi Arabia’s Prince Abdulaziz bin Salman read the riot act to cartel members who cheated on production quotas.
And Russia’s Energy Minister Alexander Novak chimed in for good measure saying the group should continue to strive for high compliance.
Oil prices have recovered from recent lows, in line with a rebound in broader markets, but will remain sensitive to the pace of the global economic recovery and news about global supply.
Crude oil prices drop on fears of oil glut, OPEC meets today
U.S. West Texas Intermediate felly by 1.57%, to trade at 39.53/barrel, after gaining 4.9% yesterday.
Crude oil prices dropped at Asia’s trading session on Thursday morning, after rising in the two previous sessions. The slide was attributed to growing concerns on oversupplies after it re-emerged that some oil installations around the Gulf of Mexico are to resume production following Hurricane Sally’s passage.
Also, OPEC is scheduled to hold its meeting today.
What we know: At the time this report was drafted, Brent crude prices dropped 1.30% to trade at $41.76 a barrel, after surging as high as 4.2% on Wednesday.
U.S. West Texas Intermediate fell by 1.57%, to trade at 39.53/barrel, after gaining 4.9% yesterday.
The black liquid derivative price plummeted on the macro coming from a bigger-than-expected rise in U.S. distillate inventories, which include diesel and heating oil, that raised concerns about fuel demand in the world’s largest consumer of oil.
Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, spoke on why all eyes now seem to be on OPEC’s all-important meeting, scheduled to hold today.
“Still, it will be crucial for the OPEC JMMC to manage the perception that compliance is an issue for the group and to send a strong signal that OPEC+ remains committed to a stricter level of laggard compensation and maintaining cuts for the full duration of the OPEC+ agreement.
“And buttressing a stouter compliance view, the new problem producer UAE has assured the group they will compensate for pumping too much oil for the past few months, which has further boosted sentiment.
“As far as the post JMMC impact, beyond reaffirming compliance and perhaps some resolution on catching up quota volumes, we should expect limited new news and certainly nothing to significantly bump the crude market out of its current funk and push brent back to $45 per barrel.”
However, the OPEC+ Joint Ministerial Monitoring Committee (JMMC) meets today, though it is not widely expected to recommend any changes.