Oil extends gains on output cuts, US-Iran tensions

Cornelia Mascio
Mag 23, 2020

Futures for WTI for June trading on the NY Mercantile exchange (NYMEX) by this time has risen in price by 7.8% ($1,28) - up to $17,78 per barrel.

Oil markets have plunged in recent weeks as lockdowns and travel restrictions to fight the coronavirus around the world batter demand. The global benchmark Brent crude for June delivery decreased 2.51 dollars to close at 25.57 dollars a barrel on the London ICE Futures Exchange.

The market was also inundated with low-priced oil after Saudi Arabia launched a price war with Russian Federation.

Under a deal agreed between the Organization of the Petroleum Exporting Counties and other producers including Russian Federation and Azerbaijan, a grouping known as OPEC+, output cuts of 9.7 million barrels bpd should take effect from May.

"After the price crash earlier this week, which seems to have made every person on the planet aware of the problems in the oil market, several relevant announcements of active crude production shut-ins have made the rounds", JBC Energy said.

Oil prices have been hit hard as the pandemic strangles demand due to lockdowns and travel restrictions, with United States crude falling into negative territory for the first time this week as storage space runs low.

Azerbaijan's Azeri-Chirag-Guneshli oil project will also have to cut output sharply from May to fulfill commitments under the deal, four sources told Reuters.

There are also plenty of supplies from the Middle East with no buyers as "freight costs are high", he said.

After President Donald Trump ordered the US Navy to destroy any Iranian boats that harass American ships in the Gulf, the Islamic Republic's Revolutionary Guards warned Thursday of a "decisive response".

The Gulf is a major gateway for oil to reach worldwide markets, and spikes in US-Iran tensions typically drive prices higher. Analysts say the global benchmark, Brent crude, is a better reflection of the current state of the market, but prices remain at their lowest level in decades.

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