Brent crude was up
51 cents, or 1.2 per cent, at $42.81 per barrel, by 0628 GMT, while U.S. West
Texas Intermediate (WTI) crude rose 32 cents, or 0.8 per cent, to $39.87 a
barrel.
Both hit their
highest since March 6 earlier in the session, at $43.41 and $40.44,
respectively.
Brent has nearly
doubled since the Organisation of the Petroleum Exporting Countries (OPEC),
Russia and allies, collectively known as OPEC+, agreed in April to cut supply
by 9.7 million barrels per day (bpd) during May-June to prop up prices that
collapsed due to the coronavirus crisis.
On Saturday, OPEC+
agreed to extend the deal to withdraw almost 10 per cent of global supplies
from the market by a third month to end-July.
Following the
extension, top exporter Saudi Arabia hiked its monthly crude prices for July.
But Howie Lee,
Economist at Singapore bank OCBC, noted that the latest deal had fallen short
of market hopes for a three-month extension of output cuts.
He said both
benchmarks would require stronger bullish factors to propel prices back to
where they were before March 6, when they crashed after OPEC and Russia
initially failed to reach an agreement on supply cuts.
“It’s a big gap
there; you need a strong conviction to go from $43 to pre-crash levels,’’ Lee
said, referring to Brent being above $50 before the March crash.
Low prices have
drawn Chinese buyers to boost imports.
Purchases by the
world’s largest crude importer rose to an all-time high of 11.3 million bpd in
May.
The OPEC+ move to
extend cuts to July is, however, expected to lead to a supply deficit by
October, aiding prices in the longer run, OCBC’s Lee added.
Market participants
are now eyeing compliance among OPEC members such as Iraq and Nigeria, which
exceeded production quotas in May and June, for trading cues, analysts said.
Libya’s supply could
also rise soon as two major oilfields have reopened after months of a blockade
that shut off most of the country’s production.
“The potential
return of Libyan output could also cause considerable challenges for the OPEC
leadership,’’ said Helima Croft, Head of Global Commodity Strategy at RBC
Capital Markets.
Even as oil prices
recovered, they are still well below the costs of most U.S. shale producers,
leading to shutdowns, layoffs and cost-cutting in the world’s largest producer.
The number of
operating U.S. oil and natural gas rigs fell to a record low for a fifth week
in a row in the week to June 5, according to data from Baker Hughes Co.
Nearly 30 per cent
of the U.S. offshore oil output was also shut on Friday as tropical storm
Cristobal entered the Gulf of Mexico.
The storm weakened
to a tropical depression on Monday morning.
Higher oil prices
could invite the reinstatement of supply, notably the U.S. shale, that was
planned to be shut-in in June and July, BNP Paribas’ Harry Tchilingurian said.
“OPEC+ faces a
Catch-22 situation,’’ he said.
“The resumption of
output … may moderate the pace of rebalancing of the oil market.’’
(Reuters/NAN)
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