A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.
Anticipation that OPEC and allied countries will extend record production cuts through July is sending oil prices higher, with Brent crude futures, the global benchmark, rising above $41 per barrel for the first time since early March.
Brent crude futures, the global benchmark, rose above $42 per barrel for the first time since early March on Friday. Prices have gained more than 18% this week. West Texas Intermediate, the US benchmark, increased to more than $39 per barrel.
The latest: OPEC will meet on Saturday to discuss extending output cuts by one month, two OPEC sources confirmed to CNN Business.
Members of OPEC and their allies, including Russia and Mexico, already pledged to cut output by 9.7 million barrels a day in May and June, helping to prop up oil prices as demand for crude begins to recover.
But Bjornar Tonhaugen, head of oil markets at Rystad Energy, notes that oil producers are still managing a tough balancing act. They’ll likely want to keep whittling down what’s in storage facilities, helping prices rise to a more sustainable level, before reversing course.
“Even if demand exceeds supply for a while, that does not mean that we really have a problem,” Tonhaugen told clients Friday.
Global oil prices have risen for the past six weeks as restrictions on movement ease and economies begin the process of reopening. Brent crude has more than doubled after hitting its lowest level in decades in April. But prices remain depressed. In early January, Brent crude was trading close to $69 per barrel.
Investors are now mostly focused on what will happen in August. Craig Erlam, senior market analyst at Oanda, thinks output will likely be able to increase again at that point.
“With people leaving their houses, returning to work — maybe even avoiding public transport in favor of [cars] — and borders reopening, record supply cuts won’t have to last much longer to sustain these prices,” he said.
Saudi Arabia, which added to existing cuts by committing to slash an additional 1 million barrels per day in June, will reportedly allow that production to come back online.
Still, risks remain. Another wave of coronavirus infections could hit demand at a crucial moment. And it’s hard to say definitively that people will return to old habits as quickly as expected.
— John Defterios, Chris Liakos and Mary Ilyushina contributed reporting.