Traders following the crude oil market this week may have gotten a few scares, but it seems that the week will end on a high note for oil.
Towards the middle of the week, oil prices paused their recovery and declined slightly on news that some OPEC member states are operating in violation of the agreement to curb oil production. The offending parties, Iraq and Nigeria, had been pumping more oil that their quotas, despite the severe oversupply on the markets.
However, de facto leaders of the OPEC+ bloc, Saudi Arabia and Russia, were quick to act. The two leading forces managed to agree to keep the production cuts in place for one additional month, i.e. until the beginning of August. They also ensured that other countries will comply with the agreement, hopefully eliminating any unscheduled increases in supply in the near future.
OPEC+ members were supposed to meet next week to discuss future output adjustments, but the meeting was moved to tomorrow instead. Seeing that there already is a unanimous agreement to extend the cuts into July, tomorrow’s meeting is simply a formality.
The agreement to stick with the production cuts had a positive effect on oil prices. As of the time of this article's composition, the Brent crude is trading at around $41.98, while the WTI has reached $38.99 per barrel.
Bear in mind that investors were previously hoping for a three-month extension versus the one month they got now. The oil market remains in a state of oversupply and the coronavirus is still keeping demand low. Future production cuts are most likely still necessary.
