Brent crude could extend gains after OPEC+ plans to prolong production cuts
Brent crude extends its gains once again after OPEC+ finally agrees to prolong its record production cuts throughout July.
Oil continues its march upward, with Brent crude making gains for the sixth consecutive day after OPEC+ finally agreed to extend its production cuts in an effort to stabilise prices amid weakening demand due to Covid-19.
Brent crude has broken above the psychological $40 mark, with it currently trading 5% higher at $42.07 a barrel as of 15:38 (BST) on Friday.
The rise in oil price comes after several days of tough negotiations between OPEC+ nations, with Saudi Arabia and Russia eventually reigning in a disobedient Iraq to ensure that record production cuts remain in place throughout July.
Oil prices have recovered relatively quickly after falling below zero in mid-April, with a rebound in demand from China helping to lift the commodity’s price.
However, production cuts remain necessary to offset concerns about a prolonged dip in demand from other countries around the world still gripped by lockdown measures aimed at curtailing the spread of the coronavirus.
WTI continues ascent
WTI is now in the gap down zone from early March, with the upper bound of the gap at $41.40, according to Chris Beauchamp, chief market analyst at IG.
‘Further gains take the price on towards $46.55, the 200-day simple moving average (SMA),’ he said.
‘As with indices, we have little sign of a reversal in play, and this morning’s move higher merely intensifies this uptrend,’ Beauchamp added.
EIA predicts slow recovery for oil over next 18 months
The US Energy Information Administration (EIA) said it expects the Brent crude oil price will rise to an average of $32 a barrel during the second half [H2] of 2020 and an average of $48 a barrel in 2021, with the commodity reaching $54 by the end of the year.
‘However, this price path reflects an expected of global oil consumption to 97.4 million b/d during H2 of 2020, along with relatively high compliance to announced OPEC+ production cuts, both of which are uncertain,’ the EIA admitted.
‘Also, the degree to which the US shale industry responds to the current low prices will affect the oil price path in the coming quarters,’ the agency added.
If oil prices continue to rise at a steady pace, US shale producers may be persuaded to bring wells back online which could break the already delicate alliance of OPEC+ and could increase volatility in oil markets.
The EIA will release its next short-term outlook report on 9 June.
How to trade commodities with IG
Looking to trade the oil and other commodities? Open a live or demo account with IG and buy (long) or sell (short) shares 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
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa 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. See full non-independent research disclaimer and quarterly summary.
Speculate on commodities
Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1
- Wide range of popular and niche metals, energies and softs
- Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
- View continuous charting, backdated for up to five years
1In the case of all DFBs, there is a fixed expiry at some point in the future.
Live prices on most popular markets
- Forex
- Shares
- Indices
Prices above are subject to our website terms and agreements. Prices are indicative only
