Brent crude could extend gains after OPEC+ plans to prolong production cuts

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 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 the second half 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.

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