Text size
Frederic J. Brown / AFP via Getty Images
After a few shaky days, oil prices rose on Wednesday after a surprising result at an OPEC meeting and better-than-expected government data from the US.
Brent crude, the global benchmark, set 2.1% higher at $ 43.79 on Tuesday, while West Texas Intermediate crude prices settled 2.3% at $ 41.20. Oil stocks increased, with US producer Diamondback Energy (ticker: FANG) up 1.3%.
OPEC and its allies, a group known as OPEC + that includes Russia, agreed to increase production by 2 million barrels per day in August. That would leave the group’s production of 7.7 million barrels below normal levels, instead of its current cut of 9.7 million barrels. The increase in production threatens to result in another excess oil, but OPEC ministers have said that the increase in production will be cushioned by more cuts from countries like Iraq that did not comply with the group’s previous agreement.
OPEC does not see demand return for a while, even a rebound next year will not make up for the deficit.
“Oil demand has recovered from the lows that saw daily drops of more than 20 million barrels per day in April, but is still expected to witness an annual drop of 8.9 million barrels per day for all of 2020,” OPEC Secretary General HE Mohammad Sanusi Barkindo said in a statement. “Given the considerable uncertainties, the expected rebound in 2021 will not cover lost demand this year and will not reach pre-crisis levels of 100 million barrels per day soon.”
The market had already anticipated the increase in production, so it did not have much impact on prices on Wednesday. Instead, oil appears to be reacting to new data from the Energy Information Administration that said US oil inventories fell 7.5 million last week. Analysts had expected a smaller decrease. In order for oil prices to rise, refineries will need to continue working on inventory that producers were forced to pump into storage tanks at the height of coronavirus blockages.
Still, analysts don’t wait long in the way of further gains until it becomes clearer that demand is improving. Coronavirus outbreaks in the largest gasoline-consuming states in the United States (California, Texas, and Florida) could mean that pre-crisis oil consumption may still be a long way off.
“The oil market continues to move towards equilibrium, but until the demand outlook improves, WTI crude will have a hard time breaking away from the $ 41 level,” wrote analyst Edward Moya of forex broker Oanda.
Write to Avi Salzman at [email protected]
.
