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Oil tops $40 on output cut hopes

Mohit Oberoi
Author: Mohit Oberoi

Last Updated: June 3, 2020

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.

If you are interested in trading in crude oil, you can check our list of some of the best brokers for crude oil trading. For more information on commodity trading please see our selection of some of the best online commodity brokers

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Mohit Oberoi

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.

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