Oil prices on supply cut hopes and Covid-19 demand recovery
Oil prices pushed higher this morning amid growing confidence about crude supply cuts and signs of a recovery in demand as global Covid-19 lockdowns are eased.
West Texas Intermediate crude futures rose 3.4 per cent to $34.37 a barrel this morning, just shy of an intra-day high of $34.54.
Brent crude futures were also up almost 1.7 per cent to $36.14, adding to a gain of 1.1 per cent on Monday, when there was thin trading due to US Memorial Day celebrations.
Markets were boosted by comments from Russia, which said its oil output had nearly dropped to its target of 8.5m barrels per day for May and June.
The Opec Plus oil cartel of the world’s biggest producers previously agreed a supply cut deal to reduce output by almost 10m barrels per day.
Members are due to meet again in June to discuss further cuts to help bolster prices, which are still down roughly 45 per cent since the start of the year.
Russia’s energy minister has said rising demand around the world should help cut the current surplus of roughly 7m to 12m barrels today by June or July.
“Oil prices climbed in early trade on Tuesday as easing lockdown restrictions sees more cars back on the road boosting demand for fuel,” said Fiona Cincotta at City Index.
“Crucially, at the same time, expectations are firming that producers will stick to agreed production cuts. Quite simply increasing demand coupled with mounting evidence that the supply cuts are coming through is lifting the price of oil.”
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said the combination of supply cuts and a pick-up in demand should continue to support oil prices.
But she added: “The $40 level will likely cap the upside potential due to rising trade uncertainties between the US and China.”