Oil markets extend gains as prices end on a monthly high

Abu Dhabi: Oil prices extended their rally for a fifth consecutive weekly high, as oil markets ended the month May on a positive note driven by production cuts and global economies easing their lockdown measures.

Brent was trading at $37.84 on Friday’s closing, with West Texas Intermediate (WTI) on $35.49, as the American benchmark recorded an 88 per cent gain for the month, a complete turnaround to its negative pricing near the end of April.

“The Opec+ cuts are doing their job in restoring the oil market closer to balance but improving sentiment generally toward markets—particularly for risk assets like equities or highly trade-exposed currencies like the Australian dollar—is also helping to catalyze a turnaround in oil prices,” said Edward Bell, commodity analyst at Emirates NBD.

“The excessive contango of the last few months appear to be behind the market thanks to a considerable drop in production—both from Opec+ and others—and sentiment improving toward demand for the rest of the year,” he added.

“Oil consumption is in no way going to return to pre-coronavirus levels but the scale of demand destruction may be far less than the market initially feared,” Bell said.

Ole Hansen, head of commodity strategy at Saxo Bank, said that attention would now turn to the meeting of Opec+ in June and whether the body extends its production cuts of nearly 10 million barrels per day.

“The oil market focus in early June will once again turn to Vienna where Opec and the Opec+ group convene to discuss a path forward. Some concerns that Russia may struggle to commit to current cuts beyond July may once again create some nervousness prior to the June 8 to 10 meetings.

“This on the grounds that the recovery in crude oil prices so far has primarily been driven by supply cuts, that can easily be reversed, and not yet a solid recovery in demand,” he added, highlighting how oil markets would still want to see production cuts remaining in place to support prices.