Oil prices climb higher on hopes OPEC+ will approve supply cuts
Oil prices moved higher on Thursday as investors anticipate supply cuts will be agreed by OPEC+ in a move that will support the market amid weakening demand due to the Covid-19 outbreak.
Oil prices moved higher on Thursday in anticipation that OPEC+ will agree to supply cuts in a move that will support the market amid weakening demand due to the Covid-19 outbreak.
Brent crude is trading at $33.68 a barrel, up 2.5%, as of 15:20 (GMT) on Thursday. Meanwhile, the US West Texas Intermediate (WTI) is 2.7% higher at $25.77 a barrel.
OPEC+ meet to discuss supply cuts
OPEC+ will meet to discuss cutting oil production by about 10% of world supply, which equates to a reduction of around 10 million to 15 million barrels of oil per day (bpd) in a global effort to support the market amid the economic fallout from Covid-19.
Investors have grown optimistic about the prospect of supply cuts after reports surfaced that Russia was ready to reduce its output by 1.6 million bpd, with Algeria’s energy minister hopeful that the meeting will bear fruit. However, Russia has made it clear that it will only reduce supply if the US pledges to do the same.
If OPEC+ can agree to the supply cuts, it would represent the larges reduction in production ever signed off by the group of oil producers.
But even if OPEC+ can agree to a 15 million bpd cut in oil production, it is unlikely to be able to offset weakening demand, especially when forecasts predict a 23 million bpd supply overhang in April.
‘Even if a production-cut agreement is reached, which will surely give prices a short-term boost, we believe the enthusiasm will subside at some point and the reality of the size of the demand imbalance will eventually hit the market,’ Rystad Energy’s head of oil markets, Bjornar Tonhaugen, told Reuters ahead of the OPEC+ meeting.
Similar sentiments have been echoed by analysts, who contend that oil prices have fallen by 50% since the start of the year and global demand forecasts are down by 30%, raising eyebrows about the efficacy of OPEC+ supply cuts in support oil prices.
‘Ultimately, the size of the demand shock is simply too large for a coordinated supply cut,’ analysts from Goldman Sachs said in a note.
How to trade commodities with IG
Create an IG Trading Account or log in to your existing account
Enter ‘Oil - Brent Crude’ in the search bar and select it
Choose your position size
Click on ‘buy’ or ‘sell’ in the deal ticket
Confirm the trade
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
React to global volatility
Market volatility continues as coronavirus dominates the global agenda. Trade with us to take advantage of:
- Tight spreads – from just 1 point on major indices, and 2.8 on US crude
- Guaranteed stops – they’re free to use, and you’ll only pay a small fee if they’re triggered
- Round-the-clock assistance – our highly-skilled team are on hand to support you
Live prices on most popular markets