- Oil Prices At $40 a Barrel
- Production Cut Extension
- Surging Oil Demand
Oil prices edged higher in early Monday trading session as traders reacted to OPEC and its allies agreeing to extend a deal on production cuts to the end of July. A confirmation that crude imports to China soared to their highest level in May also continued to offer support to oil prices.
Oil Prices Rally
Brent crude was up by as much as 2.1% rallying to three-month highs of $43.19 per barrel. U.S West Texas Intermediate was also up by 1.6% to highs of $40.17 a barrel.
Oil prices have more than doubled in price in the wake of the Organization of the Petroleum Exporting Countries and its allies agreeing to a 9.7 million barrel per day cuts since April. A rally past the $40 a barrel level comes on the heels of the major producers agreeing to extend the production to the end of July.
The extension is poised to cut global supplies by up to 10%, a cut expected to curtail a glut in supply that plunged prices to record lows in March. However, the production cut extension fell short of market expectations, as traders expected a three-month extension to bring the glut in supply to control. A tighter crude supply should help repair the oil market that has struggled with a decline in demand in recent months.
Surging Oil Demand
Low prices have helped fuel demand for oil products in the markets even though producers are not making as much money as they would have hoped. Immediate data indicate that China’s crude imports soared to an all-time high on the country, importing 47.97 million tons in May amounting to 11.34 million a day.
A surge in oil imports in China and around the world follows the opening of the economies in the aftermath of the COVID-19 pandemic. Demand had initially plummeted to record lows as lockdown restrictions designed to curb the spread of the virus restricted movements leading to a decline in demand.