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02.06.2020 02:04 PM
Oil continues to rally

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Crude oil recorded a steady recovery yesterday, rising by 2.8% and amounting to $ 38.51 per barrel. The main reasons for the increase were the slow but steady recovery of demand in fuel and raw materials, and the production cuts promoted by OPEC + members.

At the end of this week, the OPEC + members are scheduled to discuss further decisions on the production cuts earlier agreed on to reduce oil supply. However, investors are concerned about rumors that Russia, which is one of the largest members of OPEC, is not inclined to extend the contract, as it considers its participation in it impractical.

Saudi Arabia, meanwhile, advocates the continuation of the policy until August. Other members of the organization are also having weighty arguments about the cancellation of the contract, as according to them, the oil is already increasing steadily, even without the news of further production cuts. In addition, the retreat of the coronavirus pandemic has returned the demand for raw materials. These facts are of particular concern to Russia, which is already saying that it is not ready to reduce production further, increasing the chances of its withdrawal from the agreement. Russia may refuse further cooperation in this direction.

OPEC + members will try to reach consensus on the issue of reducing production, but most experts are skeptical that they will succeed. The main issue is the uneven production cuts of member countries, since at the current policy, Saudi Arabia reduced production more than what was agreed on, while Iran and Nigeria took a long time before implementing the agreement. The production cuts also should have been 6.084 million barrels per day, but the actual reduction was not even higher than 4.48 million barrels per day. The completion of the agreement was only about 74%.

Another important event that could significantly affect the oil industry is the escalation of conflict between the US and China, which investors are currently disregarding. Although it has not pulled the market yet, a serious negative in the geopolitical equilibrium will cause catastrophe in crude oil. China has already responded to the attacks of the US by suspending imports of agricultural products from the country, which could further aggravate the conflict. If the US retaliates and continues the war, trade relations between the two countries may break completely, which would heavily affect both sides, including the oil market.

Meanwhile, Brent futures for August delivery was up 0.97%, or $ 0.37 in London, which rose the quotes to $ 38.69 per barrel. Yesterday, raw materials closed up to 1.3%, or 0.48 dollars, and stood at $ 38.32 per barrel.

WTI oil for July delivery also traded positively in New York, rising to 0.73%, or $ 0.26 at the morning. Its current level is now $ 35.70 dollars per barrel, up from Monday's price of $ 35.44 per barrel.

Maria Shablon,
Experto analítico de InstaForex
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