Oil prices surge as OPEC+ extends output cuts into April

Chevron oil exploration drilling site near Midland, Texas, U.S. August 22, 2019. (Reuters)

SULAIMANI (ESTA) — Oil prices rose on Friday after OPEC and its allies agreed not to increase supply in April as they await a more substantial recovery in demand amid the coronavirus pandemic.

Brent crude futures for May rose 81 cents to $67.55 per barrel at 0620 GMT, while U.S. West Texas Intermediate (WTI) crude futures were up 74 cents to $64.57 a barrel.

Both contracts surged more than 4% on Thursday after the Organization of the Petroleum Exporting Countries (OPEC) and allies, together called OPEC+, extended oil output curbs into April.

Saudi Arabia also decided to extend its voluntary cut of 1 million barrels per day through April.

“It just goes to show how much of a surprise the OPEC+ discipline is,” Reuters quoted Michael McCarthy, chief market strategist at CMC Markets, as saying.

“What makes the gain even more impressive is that it comes against a risk-off backdrop and a higher U.S. dollar,” he said.

Investors were surprised that Saudi Arabia had decided to maintain its voluntary cut through April even after oil prices rallied over the past two months.

“An array of factors coalesced to bring the parties together, but the resultant price increase will almost certainly push the parties to change their minds when they meet again on April 1, 2021,” commodity analysts at Citigroup said in a note, according to Reuters.

“Whatever its rationale, from a pure market balancing perspective, OPEC itself has indicated that more than 2 million barrels per day (bpd) of oil will be required in the market by end-June. That need starts by mid- to late Apr’21, as refinery demand for crude starts growing before escalating through Aug’21.”

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