By Ann Koh and Alex Longley sure 04/12/2020
(Bloomberg) – Oil extended its gains to $ 50 a barrel after OPEC + reached a compromise deal to gradually reduce production cuts.
Futures rose 1.1% in London after closing Thursday at the highest level in nine months. After five days of discussions, the group will begin adding 500,000 barrels per day of crude to the market in January, with ministers meeting monthly to decide on next steps. The deal avoided a breakup of the OPEC + unit after a tense split between Saudi Arabia and the United Arab Emirates.
The oil futures curve, meanwhile, points to tightening supply as demand in Asia explodes and the key North Sea market strengthens. The quick time gap for global benchmark Brent has downgraded even further, as the nearest December contract trades higher than the same December 2022 contract.
The OPEC + deal offers something to members concerned about market fragility, as well as nations that want to pump more to take advantage of higher prices. Oil has recently rallied around optimism that demand for fuel will start to rebound once the Covid-19 vaccines are widely distributed. At the same time, the return of consumption in Asia continues to overtake the rest of the world, boosting hopes that a glut accumulated earlier in the year may dissipate.
“Asian demand is booming right now,” Amrita Sen, co-founder of consultant Energy Aspects Ltd,. said in a Bloomberg television interview. “If this momentum continues, we could actually see the oversupply wipe out much sooner than expected.”
- Brent for the February settlement climbed 55 cents to $ 49.26 a barrel at 10:35 a.m. London time after closing at the highest level since March 5 on Thursday.
- Futures are up 2.1% this week
- West Texas Intermediate for January delivery added 1.1% to $ 46.13
With OPEC + now set to meet on a monthly basis to handle additional additions to the offering, the group is likely to become increasingly dependent on price signals such as lead times, Goldman Sachs Group analysts wrote. Inc. in a report. The recent recovery in market structure has been driven by financial flows, producer coverage and refinery purchases in Asia, they said.
Analysts widely welcomed the group’s display of unity. Most said the modest increase in supply would likely keep the market in deficit and Citigroup Inc. revised its price forecast upward. However, some believe that the decision to increase production could call into question the group’s ability to keep production under control.
“We believe there is a real risk that compliance could collapse as countries subject to quotas seek to maximize profits from a market supported by vaccine optimism and the free flow of production adjustments. performed by others, ”wrote RBC analysts including Helima Croft. a report.