Opec+ extends production curbs for third month

The Organisation of Petroleum Exporting Countries and its allies have extended their historic production curbs for another month, following a meeting over the weekend.

The oil cartel and its allies, known as Opec+, have agreed to extend plans to withdraw around 10% of global supplies for a third month, to the end of July. Saudi Arabia, the world’s leading exporter, immediately raised its monthly crude prices for July by more than expected.

Both Brent Crude and West Texas Intermediate rose to fresh highs after the meeting, although by Monday prices lost some of their gains. Markets had largely priced in the expected extension, although prices were also supported by Tropical Storm Cristobal, which halted around a third of oil production in the US Gulf of Mexico.

As at 1345 BST Brent was trading at $42.10 a barrel, while WTI was at $39.06.

Oil prices tumbled at the start of the year, after a price war between sometime allies Saudi Arabia and Russia, as well as the Covid-19 pandemic, saw supplies surge while demand slid. Brent tumbled to below $20 a barrel, while the WTI May contract slide into negative territory as storage facilities reached capacity.

In April, however, Russia and Saudi Arabia halted the price war and Opec+ agreed to cut supply by 9.7m barrels per day during May and June. Those cuts were due to taper to 7.7m bpd from July to December.

But at the weekend, Saudi energy minister Prince Abdulaziz bin Salman told fellow delegates: “Demand is returning as big oil-consuming economics emerge from pandemic lockdown. But we are not out of the woods yet and the challenges ahead remain.

Edward Moya, senior market analyst at Oanda, said: “The global economic recovery is still very fragile and Saudi Aramco’s price hike, the biggest in 20 years, could start to hamper the rally. The next couple of months will be interesting as oil-producing nations will try to navigate maximising oil sales while not giving up market share.

“The curve indicates energy traders should not expect much higher prices over the next couple months. Oil’s path forward will rely on the demand outlook and that will be determined by improving air travel and driving traffic. Bullish expectations are becoming the consensus, but it seems oil prices could ready for a pullback once the Saudi-Russian price war gap is filled.”