Brent crude oil prices moved above $40 per barrel in early trade on Wednesday for the first time in almost three months.
The West Texas Intermediate (WTI) has also rebounded and was trading slightly below $38 per barrel. In April, WTI turned negative for the first time in history amid a shortage of storage space. However, prices bounced back in May and WTI gained 88%, its best monthly gain.
Two factors currently support crude oil prices. First, Opec+ block agreed to supply cuts, and second, demand has recovered as economies are gradually reopening. The Opec+ block consists of OPEC (Organization of Petroleum Exporting countries) and other countries like Russia.
“A consensus is emerging that the producer group will prolong current cuts,” Stephen Brennock of oil broker PVM told Reuters. Brennock is referring to the Opec+ block. The Opec+ block agreed to a 9.7 billion barrel per day (or bpd) production cut for May and June.
Economies ease lockdowns
While there is no concrete agreement until now, the Opec+ might consider extending the production cut beyond June.
“When you have Brent approaching $40, it is a good sign. We are on the right track,” said an Opec delegate.
China’s economy has bounced back as it controlled the pandemic. Last month, the country’s manufacturing as well as services PMI (purchasing managers’ index) came in above 50. Readings above 50 indicate growth.
“As virus-related lockdown measures continue to be lifted, we expect that demand will gradually recover,” Capital Economics said in a note, estimating that global oil consumption will fall to just under 92 million bpd on average in 2020.
In April, UK-based billionaire industrialist Gopichand Hinduja said that he expects oil prices to settle between $40-$50 per barrel after the pandemic.
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