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Oil futures on Friday headed higher for the day and week as OPEC members and allies tightened the reins on output cuts and some signs of improvement in the global economy brighten the outlook for energy demand.
The Joint Ministerial Monitoring Committee, or JMMC, which monitors compliance with OPEC output quotas, held a gathering Thursday via videoconference, saying Iraq and Kazakhstan have already submitted “compensations schedules,” to make up for falling short of their pledges to reduce output. Other “underperforming participants” will have until June 22 to submit their plans to compensate for production above their targeted levels.
The OPEC+ decision “helped renew confidence that members will further cut production to comply with the 9.7 million [barrel per day] agreement,” said Paola Rodriguez Masiu, senior oil markets analyst at Rystad Energy. The cuts officially kicked in at the start of May and were extended to run through July.
“The compliance level has already been higher than most of the market participants expected and it seems that a better level is achievable,” she said in emailed commentary. OPEC+ pegged compliance with the cuts at 87% in May.
Complying with the full 9.7 million barrels per day in cuts “means shutting another million barrels of daily production,” said Masiu. “That’s not negligible and it is definitely a boost factor for prices.”
West Texas Intermediate crude for July delivery CL.1, +3.27% CLN20, +3.27%, the U.S. benchmark, was trading $1.63, or 4.2%, higher at $40.47 a barrel on the New York Mercantile Exchange. Front-month contract prices were on track for the first finish above $40 since early March, FactSet data show.
Global benchmark Brent oil for August delivery BRNQ20, +2.69% added $1.29, or 3.1%, at $42.80 a barrel on ICE Futures Europe, after gaining 2% in the previous session.
For the week, WTI is on pace for a more than 11%, while Brent was looking at an over 10% weekly advance.
Commodity analysts also said that renewed talks about a recovery fund to help Europe’s troubled economies and easing Sino-American relations were helping to lift the outlook for crude demand.
European Union leaders relaunched negotiations on Friday over a €750 billion ($840 billion) recovery fund to revive the eurozone but divisions remain.
“The EU 750-billion-euro recovery fund will support the economic recovery in Europe and help the prospects for stronger crude demand later this summer,” wrote Edward Moya, senior market analyst at Oanda, in a daily research note.
A report that China-U.S. trade tensions might be easing also helped to boost crude prices. Bloomberg News reported that China will increase buying of U.S. soybeans, corn and ethanol in line with a phase one trade deal struck at the start of this year.
“Globalization is also important for crude demand and if the U.S. and China can continue a healthy trade relationship that should also be positive for oil prices,” Moya wrote.
Still, there were concerns about a possible resurgence of COVID-19 cases and the effect that would have on global energy demand.
“Demand conditions remain the real risk factor in the current market, highlighted most recently by a sharp fall in driving activity in Beijing as China works to curtail a wider outbreak of COVID-19 in the capital city,” said Robbie Fraser, senior commodity analyst at Schneider Electric, in a daily note. “That comes as a number of U.S. states are seeing their number of new cases peak, adding risks to an economy attempting to rebound.”
Back on Nymex, petroleum product futures moved up along with oil, with July gasoline RBN20, +1.63% added 1.6% to $1.2775 a gallon and July heating oil HON20, +2.15% tacked on 2.4% to $1.2276 a gallon. Both contracts were headed for gains of 11% or more for the week.
July natural gas NGN20, +2.62% traded up by 2.4% at $1.677 per million British thermal units, but was on pace for a weekly loss of around 3%.
