Crude oil prices rally higher as OPEC+ ramps up effort to curb oversupply
- 21st August 2020
- Posted by: Hakeem
- Category: Commodities
Crude oil prices soared higher on Friday morning, on track for the third consecutive week of gains.
This had been triggered by OPEC+’s efforts to cut down crude oil output, coupled with growing concerns over the global economic recovery from the COVID-19-induced recession.
What we know: At about 5.55 am GMT, U.S. West Texas Intermediate gained 0.2% to $42.90. The price is on course for a 2% rise this week.
Also, Brent crude rose by 0.4% to trade at $44.07, heading for a weekly rise around 0.5%.
Both benchmark oil contracts dropped about 1% yesterday after weekly U.S. jobless claims came in higher than expected.
Stephen Innes, Chief Global Market Strategist at AxiCorp gave vital insights on the macros disrupting crude oil demand-supply rebalancing. He said;
“The Joint Ministerial Monitoring Committee (JMMC) continued to focus on reigning in laggards, which should be supportive for prices. And although Iraq has made progress but remains above quota, and Nigeria is still significantly over-producing, has been given until August 28th to deliver detailed plans for coming into compliance and over-compensating for their failure to cut production so far.
“Industry reports estimate that 1.2mb/d of additional cuts through August and September are needed to offset oversupply to date, implying OPEC+ cuts fall to 8.9mb/d in the current phase instead of the 7.7mb/d target.
“But with enforcement tactics reduced to merely public smearing of laggards or a very unlikely disbanding of the agreement, the proof will need to be in the pudding as it remains critical that non-compliant members toe the line to bring the markets closer to equilibrium.”
Hopefully, the ongoing recovery of global demand will relieve some pressure on OPEC+. However, it is worth noting that OPEC+ release did suggest there remains “growing risks” of a prolonged second wave. It also hinted that the global recovery is moving slower than expected.