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

Looking to trade oil and other commodities? Open a live or demo account with IG and buy (long) or sell (short) the asset using derivatives like CFDs in a few easy steps:

  • 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

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

React to global volatility

Market volatility continues as coronavirus concerns amplify. Trade with IG and 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 only incur a fee when triggered
  • Round-the-clock assistance – our highly skilled team are available when you need support

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.