Brent crude prices soared to their highest levels since early March, to reach pre-Corona prices, in Thursday’s trading.
Brent crude prices rose by 1%, due to renewed hopes about a US stimulus agreement and after major oil producers agreed to increase production modestly by 500 thousand barrels per day from next January.
Brent futures rose 46 cents, or 1%, to determine the settlement price at $ 48.71 a barrel.
Whereas, US West Texas Intermediate crude increased 36 cents, or 0.8%, to its highest close in a week at $ 45.64.
This is the highest Brent settlement since last March 5, before most countries imposed comprehensive closures to stop the spread of the Corona virus.
Behind the scenes of the new agreement
The OPEC + agreement to increase production means that the Organization of the Petroleum Exporting Countries (OPEC) and Russia, within the framework of the OPEC + alliance, will reduce production by 7.2 million barrels per day, equivalent to 7% of global demand from next January, compared to current cuts It amounts to 7.7 million barrels per day.
The coalition also agreed to hold a monthly meeting, beginning next January, to decide on the production policy.
OPEC + was expected to extend the current cuts until at least last March, after it backed away from previous plans to increase production by 2 million barrels per day.
The decision reflects OPEC + countries’ expectations of a slowing global economic recovery.
The alliance includes members of the Organization of the Petroleum Exporting Countries (OPEC) and a number of oil-producing countries from outside it, led by Russia.
The cuts are aimed at addressing weak oil demand in the midst of a second wave of the Corona virus.
The reason is the vaccine
Paula Rodriguez-Massieu, chief oil market analyst at Rystad Energy, said, “The markets react positively at the present time and prices are registering slight increases because an additional supply of 500 thousand (barrels per day) will not be a killer of balances.”
For his part, Robert Yoger, director of energy contracts in Mizuho, said, “The market rose to its highest levels in several months due to expectations of vaccine and stimulus demand, not from OPEC’s supply management.”
Previous OPEC + agreement
The coalition is committed to a significant reduction in oil production in order to adapt it to the demand, which has been greatly reduced due to the repercussions of the Covid-19 epidemic, based on the gradual steps that were adopted after difficult negotiations last April.
In April 2020, OPEC and its allies, major independent producers, agreed to reduce oil production by 9.7 million barrels per day in early May.
The OPEC + alliance reduced its agreement by about 2 million barrels of oil per day to 7.7 million barrels per day from the beginning of August until the end of this December.
According to the previous coalition agreement, the restrictions of the production cut agreement will be reduced by another 2 million barrels to 5.8 million barrels per day, starting in January 2021, but the high number of Coronavirus infections in the United States and Europe may not help the coalition to proceed. Go ahead with this plan.