- Oil Production Cuts Extension
- Rebalancing oil markets
- Declining Oil Stock Piles
Oil prices continued from where they left on Tuesday, racing higher by more than 0.3% in early Wednesday trading session. The rally came as traders reacted to growing optimism that OPEC and its allies are closing in on an extension of supply cuts, set to balance forces of supply and demand in the oil markets.
Production Cut Optimism
Market expectation is high that Saudi Arabia and Russia will agree to a further extension of the 9.7 million barrel a day cuts through September. The production cuts are expected to curtail a glut in supply that has continued to weigh down prices as demand struggles to bounce to pre-COVID-19 levels.
Oil prices hit three months high on growing expectations of the production cuts. Brent Crude was up 0.66% to $39.79, the highest level since March 6. West Texas Intermediate Crude WTI was up by more than 0.9%, with a barrel touching highs of $37.14.
An extension of production cuts is one of the catalysts expected to take prices above the $40 a barrel level that has so far emerged as a strong resistance level.
Eyes in the oil markets are fixated on the OPEC meeting scheduled for June 9. The outcome of the meeting will have a significant impact on the direction oil prices move heading into the weekend. While a production cut extension is highly expected, some analysts are skeptical that Russia and some members will comply with the resolution.
Declining Stock Piles
Russia and Saudi Arabia were entangled in a fierce production standoff early in the year that led to oil prices crashing to record lows as demand dropped amidst the COVID-19 pandemic. The oil market has so far shown signs of rebalancing as countries ease coronavirus triggered restrictions.
The American Petroleum Institute reporting that stockpile at the Cushing storage is declining also continues to affirm strong demand, conversely supporting a spike in prices. Last week, stockpiles dropped by 2.2 million barrels, marking a fourth straight week of drops.