Oil moves up towards $50 after Opec+ supply compromise
Brent crude oil futures rose to just under $50 a barrel on Friday as major producers agreed on a compromise to increase output slightly from January but continue the bulk of existing supply curbs to cope with coronavirus-hit demand.
Brent was up 53 cents at $49.24 a barrel by 1034 GMT ater hiting its highest since early March at $49.92. West Texas Intermediate rose 47 cents to $46.11 a barrel. Both benchmarks are set for a fith straight week of gains.
Opec and Russia on Thursday agreed to ease deep oil output cuts from January by 500,000 barrels per day with further as yet undefined increases on a monthly basis, failing to reach a compromise on a broader policy for the rest of 2021.
Opec+ had been expected to continue existing cuts until at least March, ater backing down from plans to raise output by 2 million bpd.
The increase means the Organization of the Petroleum Exporting Countries (Opec) and Russia, a group known as Opec+, are set to reduce production by 7.2 million bpd, or 7% of global demand from January, compared with current cuts of 7.7 million bpd.
The deal will ensure declining crude inventories through the first quarter, said SEB analyst Bjarne Schieldrop.
“Oil demand is likely to rebound strongly in 2021 along with the roll-out of vaccines. There are good reasons to be bullish for oil,” he said.
But there was a risk that the new arrangement could lead to lax adherence to quotas given the gradual increases baked into it, said RBC’S Helima Crot.
Also supporting prices, a bipartisan $908 billion coronavirus aid plan gained momentum in the U.S. Congress on Thursday. The premium of Brent crude futures for nearby delivery to future months is at its highest since February, a structure called backwardation, which usually points to supplies tightening up and suggests receding fears of a current glut.
Investors pushed stock markets higher Friday on continued optimism over vaccines and on signs of progress on a new US stimulus, though surging infections and deaths highlighted the painful, immediate reality of the coronavirus crisis.
In foreign exchange, the pound held its own even as European doubts over a post-brexit trade deal with Britain boiled over on Friday.
France has threatened a veto as intense negotiations entered what could be their final hours.
The euro meanwhile rose versus the dollar before Friday’s release of key US jobs data.
Brent crude oil hit its highest level since March, at close to $50 a barrel, ater OPEC and its oil-producing allies on Thursday struck a deal to offer flexibility over changes to production in the coming months.
Elsewhere, the Bombay Stock Exchange’s Sensex index passed the 45,000 points mark for the first time ater India central bank chief Shaktikanta Das expressed confidence in the local economy.
Das on Friday said Asia’s third-largest economy was recovering faster than expected from the pandemic shock, adding that GDP would fall 7.5 percent this year instead of 9.5 percent as previously projected.
“There’s plenty of enthusiasm around at the moment, whether that be vaccine results or stimulus talks on Capitol Hill,” noted Oanda market analyst Craig Erlam.
“For the first time this year, things are looking up and that optimism can be felt throughout these markets.” While the consensus is that the world can next year begin returning to normal as people are inoculated, observers warn lockdowns and other containment measures currently in place are crippling businesses and jobs.
The United States recorded more than 210,000 new cases in a 24-hour stretch to Thursday evening, and more than 2,900 deaths, according to Johns Hopkins University.
And Italy registered 993 deaths, an all-time high. The figures reinforce the need for governments to maintain restrictions, with Britain, France and Germany among the major economies imposing strict containment measures.
California, the richest state in the US, is on the brink of introducing a limited lockdown.
Focus is also firmly on Washington as US lawmakers appear to be finally inching towards an agreement on a new stimulus for the world’s biggest economy before the Christmas break.
Democratic leaders have backed a $908-billion bipartisan proposal as a starting point for discussions, and some top Republicans are also warming to the idea.
Opec and Russia agreed to ease deep oil output cuts from January by 500,000 barrels per day with further as yet undefined increases on a monthly basis