Oil prices responded to the decision by Russia, Saudi Arabia, and Iraq to support an extension for supply cuts. It registered a rise of more than $1 per barrel on Monday. The oil producers agreed to the supply cuts extension for the next six to nine months heading into an OPEC meeting later in the week.
The front-month Brent crude futures for September flirted with an intraday high of $66.14 per barrel. That represented a $1.12 gain or 1.7%. The price later settled around $65.86 a barrel by 1252 GMT on Sunday. The US crude futures for August also rose by $1.10 or approximately 1.9% to reach $59.57 per barrel. Earlier, the price had peaked at $60.10, the highest in the past five weeks.
The Organization of the Petroleum Exporting Countries (OPEC) together with its allies seem ready to extend oil supply cuts until the end of 2019. The top producers endorsed a policy on June 30 targeting to prop up prices of crude. OPEC, Russia and other producers, an alliance commonly known as OPEC+, will meet on July 1-2 to discuss supply cuts.
This group has gradually reduced oil output since 2017 to ensure that prices do not slide horrifically low amidst soaring US output and a weakening global economy. Vladimir Putin, the Russian President, said on Sunday that he had supported Saudi Arabia in the decision to extend existing output cuts of 1.2 million barrels per day (bdp) by around six to nine months.
Khalid al-Falih, Saudi Energy Minister, acknowledged that the deal would most probably be extended by nine months and there were no deeper reductions required. ANZ analysts said in a note that:
“While this needs to be ratified by the remaining members of the OPEC+ group, this appears to be a fait accompli.”
Oil Price Pressure
The prices of the black gold have come under fresh pressure in recent weeks. This new pressure arises from the slowing global economy and rising US supplies. In April, the US crude oil output rose to a new monthly record of 12.16 million bpd. The data was confirmed by the US Energy Information Administration in a monthly report on June 28.
The financial markets were enhanced by a seemingly fading US-China trade war after leaders of the two economic powers agreed to restart talks on June 29. But, analysts remain doubtful that both sides can reach a viable deal soon. Until more fundamental details emerge, it seems like it is now back to square one in the trade war talks.
The road ahead appears quite complicated as China wants more equal treatment. On the other hand, the United States is pushing through on intellectual property protection. For now, all eyes are set on the OPEC+ meeting to determine the future of the oil sector.