Oil prices gained on Tuesday morning, with investors waiting to see if major oil producers agree to extend their massive output cuts to support crude oil prices, at a virtual meeting expected to hold this week.
Brent crude futures gained 1.10%, to trade at $38.73 per barrel as at Tuesday morning. The price has doubled over the last six weeks, thanks to oil production cuts by a group comprising of the Russians, Western oil producers, and the Organisation of the Petroleum Exporting Countries.
“The whole story is very much based around the supply cuts and the demand recovery,” Commonwealth Bank commodities analyst, Vivek Dhar, told Reuters.
The rally in crude oil price in recent weeks has been triggered by growing economic demand since the deadly virus COVID-19 wrecked financial systems.
Nigerians will see this as positive news based on the fact that crude oil makes about 90% of Nigeria’s foreign exchange earnings and more than two-thirds of government revenue.
This has shown lately as Nigeria’s reserve surged pass $36.12 billion after plummeting to around $33 billion a few months ago.
“Most likely, OPEC+ could extend current cuts until Sept. 1, with a meeting set before then to decide on next steps,” said Citi’s head of commodities research Edward Morse.
Under the OPEC’s plan agreed in April, the record supply cut was to be for May and June, reducing oil production to 7.7 million barrels per day from July through December. Saudi Arabia has been leading talks to push for extending the heftier cuts, sources told Reuters last week.
“Russia will be the key obstacle in any extension, and they are unlikely to agree on any extension which goes beyond a couple of months,” said analysts at Dutch bank ING.
“An extension could push oil prices to $40, but there would have to be a follow-through on that commitment to sustain higher prices,” said Commonwealth Bank’s Dhar.