The new trading week began with positive news on oil, as OPEC members were able to reach a consensus yesterday on continuing the previously signed reduction agreement on oil production. Quotas on production cuts were mostly reached, so oil quotes increased in the market.
Member states of the OPEC also agreed to a more intensive production cut, which will compensate for the unfair distribution of quotas in the initial agreement. Three months are given to fulfill all the agreements in the contract.
The decision pushed Brent futures for August delivery near $ 43 per barrel in the London trading platform, indicating growth of about 1.63%, or 0.69 dollars. Thus, the price for crude oil this morning was $ 42.99 per barrel. On Friday's trading, Brent oil rose by 5.8% or $ 2.31, so it's weekly growth was 11.8%.
WTI futures for July delivery also rose at the New York trading platform, increasing by 1.29%, or $ 0.51 this morning, which sent light oil contracts to the level of $ 40.06 per barrel. By the close of Friday trading, it increased by 5.7%, or $ 2.14, so it's weekly growth was 11.4%.
The agreement adopted two months ago was to reduce oil production by about 9.7 million barrels per day. It was set to begin in July, in which production was expected to decrease by 7.7 million barrels per day. From the beginning of next year until May 2022, oil production should have decreased by 5.7 million barrels per day.
Unfortunately, not all member states complied with their obligations. Iraq, which was supposed to reduce production to 4.213 million barrels per day, did not fulfill its part and only reduced production to 3.552 million barrels per day. Meanwhile, oil export in the country amounted to 3.633 million barrels per day last month.
Saudi Arabia and Russia expressed extreme dissatisfaction with this, which put quite serious pressure on the country, against which the state nevertheless had to agree to fulfill its obligations in a short time and compensate for the lack of reduction over the past period. Such news brought a significant positive effect on the oil market, which continues to be confident that a decrease in production will help return the lost balance and restore the level of supply and demand.
Thus, Iraq and Nigeria are to settle their obligations as soon as possible, otherwise fines will come into force.
In another note, the fact that the world's largest oil producers have recognized the urgent need to continue reducing oil production is quite alarming. This suggests that they do not have confidence in the future, and that they are worried that the market is still in an extremely fragile position. Oil quotes, of course, are now growing amid good news, but no one is sure how long this growth will last, since no new factors are found to support raw materials.
In the meantime, Saudi Arabia intends to make prices for all brands of oil higher for buyers starting in July. Thus, for Asian partners, the cost will increase the most, hanging from $ 5.6 to $ 7.3 per barrel.
In terms of demand, crude oil increased due to China increasing its purchases of raw materials since its cost is at such a low level. Thus, Chinese oil imports have already reached a record high of 11.3 million barrels per day over the past month, creating an impetus for investors to buy.
Demand also rose because of the decision of the US to reduce oil rigs in the country. According to data published last Friday, the US closed another 16 oil rigs, so the total number of open rigs in the country is now 206, the lowest number observed over the past ten years. The indicator decreased by 70% since the beginning of this year, so investors suggested that lower supply in the market will contribute to a more intensive recovery of the global economy. Market participants are set to raise oil prices to the level of $ 45 per barrel.
To date, the oil market has achieved excellent results. Rising back to the previous levels are very much possible.
