OPEC, allies agree to extend oil output cuts by 1 month

OPEC, allies agree to extend oil output cuts by 1 month

OPEC, allies agree to extend oil output cuts by 1 month

Brent crude LCOc1 was down by 14 cents, or 0.3 percent, at 42.16 U.S. dollars per barrel, by 1210 GMT, while U.S. West Texas Intermediate (WTI) crude CLc1 fell by 41 cents, or one percent, to 39.14 U.S. dollars a barrel.

Saudi Arabia - which had curtailed output by more than its agreed quota - said at a press conference Monday that those extra reductions will last just one month as planned, as the measures have served their objective.

Both benchmarks rose to their highest since March earlier in the session with WTI topping $40 a barrel.

The OPEC+ producers agreed on Saturday to sustain those cuts, equal to about 10% of global supply, through July.

The OPEC+ deal to cut crude production removed almost 9 million barrels of oil per day (bpd) from the global market as demand was hit by the coronavirus pandemic, Russian Energy Minister Alexander Novak told a briefing on Monday.

On Sunday, Saudi state oil company Saudi Aramco hiked its July selling prices for crude grades to all destinations in a move likely to discourage buying for storage but rather could help to lower inventories.

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. "OPEC plus is proving they will do whatever it takes by agreeing to extend cuts and getting the cheaters to comply". Purchases by the world's largest crude importer hit an all-time high of 11.3 million bpd in May.

The Schork Group principal Stephen Schork argues oil demand is picking up but that it is partially due to barrels moving into the Strategic Petroleum Reserve.

Bye, bye bonus oil production cuts.

"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.

In southwestern Libya, two major oilfields have reopened after months of a blockade that shut off most of the country's production.

Saudi Arabia, OPEC's de facto leader, and Russian Federation have to perform a balancing act as they push up oil prices to meet their budget needs while not driving them much above $50 a barrel to avoid encouraging a resurgence of rival USA shale production.

As OPEC met virtually over the weekend, Tropical Storm Cristobal was swirling over the Gulf of Mexico.

"The resumption of output ... may moderate the pace of rebalancing of the oil market".

The sharp price increases show that Saudi Arabia is using all the tools at its disposal to turn around the oil market after prices plunged into negative territory in April.

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