On Tuesday, the US oil market showed optimism as the oil prices rose to the highest level since March when the global lockdown was imposed. The price rise corresponding to the drop in the US crude inventories was good news for oil producers. The American Petroleum Institute reported that the US inventories dropped by 8.32 million barrels last week, possibly the biggest drop since December.
The members of the OPEC+ group are to meet late on Wednesday to decide on the future course of production curbs or relaxation and prices as the re-opening of economies leads to a slight rise in market consumption and demand. Meanwhile, the OPEC+ is urging the members for compensatory curbs in the next two months who overshot their production quotas.
For May and June, the 23-nation group of oil-exporting countries in a historic move reduced their production by 9.7 million barrels a day, or about 10% of global supply. Besides, Saudi Arabia, Kuwait, and the United Arab Emirates also made extra voluntary cuts of about 1.2 million barrels a day for June, adding the total OPEC+ cuts to almost 11 million barrels a day. As per the existing oil policy, these cuts were relaxed to about 7.7 million barrels a day for July, followed by further easing at the start of 2021.
The new policy, to be applicable from August, is expected to be more relaxed towards production cuts, to move the market closer to normal output mode. As per the industry reports Saudi Arabia’s oil exports in August would be the same as in July as the extra barrels which the kingdom would produce would be used to meet domestic demand.
OPEC’s secretary-general Mohammad Barkindo said the oil market was showing signs of recovery. On Tuesday, OPEC said it saw market demand gaining momentum by 7 million BPD in 2021 after spiraling down by 9 million this year. On Tuesday, the US oil price reached almost $43 a barrel from a 21-year low below $16 in April. The climbing up of prices have allowed some US producers to restart suspended production, though a lot depends on OPEC’s decision on Wednesday.
Harry Tchilinguirian, oil strategist at BNP Paribas SA told Bloomberg, “Collectively, the OPEC+ supply cut will not immediately be reduced by the amount of the original agreement. The price structure in the physical market, with backwardation in Brent CFDs strengthening in the past two sessions, tends to suggest tightening supplies.”
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