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Oil Rises As OPEC Poised To Extend Output Cuts

By :   Fiona Cincotta , Senior Market Analyst
July 1, 2019 9:56 AM
Oil has rallied over 2% in early trade extending gains from the previous week as the OPEC plus group look set to roll over supply cuts until the end of the year, or early next year.

In a productive G20 meeting Russia agreed with Saudi Arabia to continue with the output production cuts. Early this morning, Iran confirmed that it would not seek to block the deal struck over the 1.2 million barrel a day output cut. This has calmed traders’ nerves and lifted the price of oil before the OPEC meeting (Monday & Tuesday) has even concluded. 
What we are seeing is just how keen OPEC are to keep prices underpinned, even at the sacrifice of loss of market share. The reward for the sacrifice has been immediately visible with the two main oil benchmarks, Brent and crude rallying over 2.5% in early trade.

Demand to increase?
The G20 meeting over the weekend had additional benefits for oil. An agreement by President Trump and China’s Xi Jinping to call a trade truce has boosted hopes of a trade agreement. Given the declining health of the world economy amid the ongoing trade dispute, traders are optimistic that a trade truce, leading to a trade agreement could put a halt to the global economic downturn, boosting demand for oil in the process. 
Numerous opposing factors

OPEC cuts, elevated tensions in the Middle East plus sanctions on Iran and Venezuela are helping to underpin oil prices. Meanwhile rapidly expanding output from US shale, combined with concerns over the health of the global economy are keeping downward pressure on oil prices. Up to now these numerous opposing factors impacting the supply and demand of oil have been roughly balanced. However, they also make it difficult to predict what’s likely to happen next. Should OPEC cut and for longer than originally thought, this could give the oil bulls the upper hand for the coming months providing the US – Sino trade truce remains in place.


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