Oil rose to trade near $43 a barrel in London after OPEC and its allies agreed to extend historic output curbs by an extra month, promising stricter compliance to ensure members don’t pump more than they pledged.
Brent futures added as much as 2.6% after posting a sixth weekly increase on Friday, the longest run of gains since May 2018.
The rise in oil price comes after news that China’s crude imports soared to an all-time high last month, capping an astounding rebound in oil demand after the nation’s economy was flattened by lockdowns to contain the coronavirus pandemic.
Imports surged to 47.97 million tons in May, or 11.34 million barrels a day, according to customs data on Sunday.
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That’s a 15% jump from April and 160,000 barrels a day more than the previous record set in November and the figure underlines how complete the demand recovery has been in the world’s largest oil importer, even as other countries are still struggling with the impact of bruising lockdowns on their economies.
It also suggests that China has been taking advantage of the collapse in prices this year to fill its strategic reserves on the cheap.
The market improvement offers oil dependent nations like Nigeria something to cheer while it also marks a victory for Saudi Arabia and Russia, which were deadlocked in a brutal price war just two months ago.
The de-facto leaders of OPEC+ showed their commitment to shore up oil markets globally over the weekend, and even cajoled Iraq, Nigeria and other laggards to fulfill their promises to reduce production.
Following the extension, Saudi Arabia made some of the biggest increases to the price of its crude in at least two decades. The steepest will hit July exports to Asia, while overall, the gains erased almost all of the discounts the kingdom made during its brief price war with Russia.
Oil has doubled since April as OPEC+ cuts trimmed a global glut and demand staged a rebound after the easing of restrictions in some countries, particularly China.
Still, a sustained recovery may be hampered by deteriorating relations between Washington and Beijing, a second wave of infections, or returning U.S. shale supply following a gain in crude prices.
OPEC+ agreed to cut output by 9.6 million barrels a day in July, 100,000 barrels a day less than this month as Mexico will end its constraints.
Any member that doesn’t implement 100% of its curbs in May and June will make extra cuts from July to September to compensate.
“The issue of compliance is a major fault line in OPEC+ now,” said Vandana Hari, founder of energy consultancy Vanda Insights in Singapore. “Crude had mostly priced in the one-month extension of deeper cuts by Friday.”
· Brent for August settlement rose 1.4% to $42.87 a barrel on the ICE Futures Europe exchange as of 7:11 a.m. London time Based on Brent’s relative strength index, oil is sitting in overbought territory and due for a decline analysts said.
· West Texas Intermediate for July delivery gained 1% to $39.93 on the New York Mercantile Exchange after falling as much as 1.9% earlier
The month-on-month boost to Saudi Arabia’s flagship Arab Light to Asia, which accounts for more than half of Saudi oil sales, is the largest in at least 20 years.
Aramco raised Arab Light to Asia by $6.10 a barrel to a premium of 20 cents over the benchmark.
Meanwhile, Libya’s biggest oilfield is gradually resuming production after a five-month shutdown due to civil war. Output will start at an initial 30,000 barrels a day at Sharara and it will take three months to return to full capacity, according to National Oil Corp. It was pumping about 300,000 barrels a day before the shutdown.
