Oil Gains for Sixth Week Ahead of Closely Watched OPEC+ Meeting
Workers use a bucket to collect a sample of crude oil at a multiple well platform in an oilfield in Russia. (Photographer: Andrey Rudakov/Bloomberg)

Oil Gains for Sixth Week Ahead of Closely Watched OPEC+ Meeting

(Bloomberg) -- OPEC and its allies will decide Saturday whether to extend a historic production-curb agreement for another month. The market is betting they will.

Futures in New York notched a sixth weekly gain in the run-up to the meeting, closing at the highest level since the producer alliance’s fateful March 6 gathering -- when talks devolved into a vicious price war that sent oil to record lows. What happens this weekend will set the course for the market, which has staged a spectacular recovery from a mid-April plunge below zero.

So far, OPEC+ has given investors little reason to expect another breakdown in talks, having already struck a tentative deal to prolong the curbs. All members of the group have agreed to meet their output quotas and those who haven’t complied said they would compensate in the coming months, a delegate said.

Investors are bullish, with bets on rising U.S. crude prices reaching the highest level since 2018. West Texas Intermediate gained 5.7% Friday to settle near $40 a barrel.

The next test will be getting past $41, where futures stood before the March OPEC+ meeting, said Robert Yawger, director of the futures division at Mizuho Securities USA. “You’d be hard pressed to find a more bullish situation than closing that gap,” he said. “We’re putting in a nice base here to rally to the next level.”

Oil Gains for Sixth Week Ahead of Closely Watched OPEC+ Meeting

Prices also got a boost from a positive U.S. jobs report that beat analysts’ forecasts and signalled that the economy may be rebounding more quickly than expected from a pandemic-fueled recession.

Still, oil’s recovery is fragile, with prices still down about 35% this year. Sustaining the rally hinges on a combination of returning demand and ongoing output cuts at a time when higher prices are prompting some U.S. producers to re-open wells.

While oil consumption in China, the world’s second-biggest oil user, is recovering quickly, the comeback is uneven elsewhere. U.S. diesel demand fell to the lowest level in 21 years last week and, in Europe, profits from making the fuel are collapsing, threatening to limit demand for crude.

OPEC+’s historic agreement to trim 9.7 million barrels a day of production has supported prices. Moscow, a habitual laggard, has complied punctiliously with the historic accord brokered by U.S. President Donald Trump, and wants to make sure others do too.

Now the group is set to extend those cuts after almost a week of wrangling and high-stakes negotiation. The cartel and its allies will hold a round of meetings starting at 8 a.m. New York time on Saturday.

  • West Texas Intermediate for July rose $2.14 to settle at $39.55 a barrel in New York
  • Brent for August delivery added $2.31 to $42.30 a barrel

WTI for 2021 traded above $40 a barrel on Friday, the highest level since March. A $45 price could be enough to see renewed production growth in the Permian Basin, Citigroup analysts wrote in a report.

Other oil-market news
  • Cristobal, now a tropical depression, will untangle itself from the Yucatan Peninsula late Friday and move north across the Gulf of Mexico, gathering strength as it heads for the Louisiana coast.
  • A supertanker carrying as much as 2 million barrels of American crude is steaming toward China, in the latest sign that demand in the world’s second largest oil consumer is on the rebound.
  • A massive fuel spill in Siberia prompted Russia to declare a state of emergency in the region as the mining company involved said the catastrophe may have been caused by climate change.
  • The number of rigs drilling for oil and gas fell to the lowest level since 1999 in May, as weak crude prices stymied activity.

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