Cautious optimism as oil price shows evidence of rallying

Oil prices flirted with the $40 per barrel mark yesterday amid speculation that quotas for international production cuts could be kept higher for longer.

Benchmark Brent crude climbed 3.1% to $39.52 at one point – a near threemonth high – prompting an analyst to claim the market was on the “recovery path”.

Bjornar Tonhaugen, head of oil markets at Rystad, said prices were “set for higher levels” if existing output quotas were kept in place by the Opec cartel and Russia.

Professor Alex Kemp, petroleum economist at Aberdeen University, said recent price rises would be “welcome” in the North Sea.

But he did not expect investment decisions to be made on new UK oil projects based on recent signals.

Brent started 2020 near $70 per barrel, only for a toxic mixture of a coronavirus-imposed drop in demand, a price war between Saudi Arabia and Russia, and dwindling storage capacity fears to send it plunging below $20 in April.

Opec and its allies, who go by the moniker “Opec+”, helped prices rally by agreeing historic new production cuts of a huge 9.7 million barrels per day (bpd) for May and June, dropping to 7.7m bpd for the rest of the year and 5.8m bpd out to April 30 2022.

Brent clambered back above $30 per barrel last month and steadied at around $35 per barrel as countries largely adhered to their quotas, while governments added impetus by announcing plans to start easing lockdown regimes.

And now speculation is mounting that Opec and Russia will bring forward a meeting tomorrow to discuss retaining the 9.7m bpd output curbs after June, helping prices rise further.

Paul de Leeuw, director of the Energy Transition Institute at Robert Gordon University, said: “The combination of slowly increasing demand and a potential extension of the existing Opec+ production cuts in early June continues to have a positive impact on the oil price sentiment.

“Although price volatility is likely to be the name of the game in the near term, the direction of travel will come as a very welcome relief for the global oil and gas sector.”

Marc Gronwald, senior lecturer in energy economics at Aberdeen University, said the North Sea industry needed more certainty that prices will not collapse again soon.

There are hopes that the oil price may be moving in the right direction