The Shell Deer Park oil refinery in Texas
The Shell Deer Park oil refinery in Texas. Oil markets closed on a weekly high on Friday as prices continue to find support at the $40 range, with global rising demand along with Opec+ production cuts. Image Credit: AP

Abu Dhabi: Oil markets closed on a weekly high on Friday as prices continue to find support at the $40 range, with global rising demand along with Opec+ production cuts bringing some short term stability to markets.

Global benchmark Brent crude was trading at $42.19 on Friday’s closing with West Texas Intermediate (WTI) on $39.75, marking their seventh weekly high in the past eight weeks, highlighting the oil market’s gradual recovery since early May.

“Oil prices managed to recover last week with both WTI and Brent futures reversing the prior week’s losses,” said Edward Bell, commodity analyst at Emirates NBD. “A resurgence of Covid-19 cases in Beijing and consequent shutting down of some activity shook market confidence during several trading sessions that demand would face a difficult outlook for the rest of the year but a still buoyant risk rally helped to pull commodities higher,” he added, highlighting how oil markets continued to closely monitor the potential for a second pandemic wave.

With Opec+ agreeing to extend production cuts of 9.6 million barrels per day through July, the task now would be on ensuring compliance from producing states according to Bell.

“Opec+ held its joint market monitoring committee (JMMC) at the end of last week and agreed specific targets for countries that failed to hit their production cut targets during the initial months of the Opec+ agreement.

“Iraq and Kazakhstan outlined how much they would cut to make up for their earlier misses while Nigeria and Angola will make their proposals this week,” he added.

“The JMMC did not recommend any short-term adjustments to the Opec+ deal and will next hold its monthly meeting in mid-July. From August Opec+ is to taper its production cuts and the producers’ bloc will be cautious to avoid its own ‘taper tantrum’ if demand is still at risk of Covid-19-related shutdowns,” he said.

And in a sign that oil markets are finally starting to rebalance, oil prices managed to close above $40 even without the JMMC recommending an extension of cuts.

“Prices are gaining because of the high compliance, the trust in the Opec+ measures and indications that road fuel demand is increasing across the world,” said Bjornar Tonhaugen, Rystad Energy’s head of oil markets.

“The fact that not extending the deep cuts to August did not influence prices, shows that the levels we currently see are sustainable and not only affected by wishful thinking but can keep their ground without necessarily needing further good news. That’s an important note,” he added.