19.05.2020 10:55 AM
No reason to worry: oil quickly rose

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The price of oil futures showed growth again this morning, the main reason for which can be considered the growing signs of recovery in the global commodity sector. Black gold producers continue to keep their promises and reduce production, while economic activity around the oil market is growing steadily.

This morning, Brent futures prices rose by 0.26%, which sent it to the level of 34.9 dollars per barrel. It can be recalled that trading on Monday ended in an increase of 7.11%, which corresponds to 2.31 dollars, oil began to cost 34.81 dollars per barrel.

The price of futures for WTI crude oil, on the other hand, added 2.29% and was at around 32.55 dollars per barrel. Yesterday's trading reflected an increase of 8.12% ($ 2.39), the level of this raw material was at around 31.82 dollars per barrel.

The continued upward movement of oil futures is due primarily to a decrease in raw material production. It can be recalled that OPEC made a sharp decline in oil exports this month, which means that a new document reflecting the agreement on a further decrease in production is gradually coming into force.

It can also be noted that the last agreement of the OPEC member countries was ratified on May 1 of this year. According to him, states in the alliance should reduce production by at least 9.7 million barrels per day. In this case, most of the decline should be provided by two countries - Saudi Arabia and the Russian Federation. They will equally reduce production by 2.5 million barrels per day. The signed document will be valid for two years, but the reduction in production will be uneven. So the decrease should already be 7.7 million barrels per day from July to December, and 5.8 million barrels per day from January next year until its expiration. However, some countries have expressed their desire to reduce oil production. Among them, in particular, is Saudi Arabia, which has announced that it will reduce production by an additional 1.2 million barrels per day. In addition, this reduction will occur in the territory of the United Arab Emirates and Kuwait.

Along with this, market participants suggest that many other countries will independently and on their own initiative join the reduction in production, which, according to experts, will become much smaller next month. Of course, such hopes of investors only fuel interest in fuel raw materials.

Serious optimism is also inspiring the market from fighting the pandemic. According to assumptions, the probability of a second pandemic wave is gradually decreasing. At the same time, restrictive measures are being removed, which positively affects the increase in the level of economic activity, and, consequently, also increases the demand for fuel.

Moreover, according to data from China, the demand for crude oil in the country has recovered almost completely today, indicating a return to the previous pre-coronavirus period. It can be recalled that China is the second largest oil country in the world. It is second only to the United States. Naturally, a rapid recovery in demand for raw materials here can ensure a long-term increase in prices on the market.

All this can be fully justified, since the production activity of the PRC is gradually growing. Moreover, there was recorded pent-up demand for gasoline from residents who often began to use their cars again.

Thus, the introduction of new stimulating measures for the economy, an unprecedented reduction in world production of raw materials, as well as pent-up demand, will determine the further dynamics of oil prices in the market.

Maria Shablon,
Analytical expert of InstaForex
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