Oil Price Fundamental Daily Forecast – Higher after OPEC+ Laggards Promise to Meet Supply Cut Obligations

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Friday and in a position to close higher for the week after OPEC producers and allies promised to meet supply cuts and signs of demand, hit the coronavirus crisis, recovering.

At 10:46 GMT, August WTI crude oil is trading $40.03, up $0.98 or $2.51% and August Brent crude oil is at $42.40, up $0.89 or +2.14%. Both futures contracts are on pace for weekly gains of more than 9%.

OPEC+ Laggards Pledge Better Compliance

Iraq and Kazakhstan, during a meeting of an OPEC+ panel on Thursday, pledged to comply better with oil cuts, sources said. This means curbs by the Organization of Petroleum Exporting Countries and allies, known as OPEC+, could deepen in July.

“There is enthusiasm in the market that oil supply is still under control,” said Paola Rodriguez Masiu, analyst at Rystand Energy. “A positive OPEC+ meeting does that and yesterday’s session helped renew confidence.”

“The key takeaway is that OPEC+ compliance will improve in the coming months,” said Stephen Brennock of broker PVM.

Brent Moves into Backwardation

In a further sign of market recovery, Brent on Thursday moved into backwardation, where oil for immediate delivery costs more than supply later, for the first time since March 1.

A premium for oil for immediate delivery usually indicates tightening supply and encourages storage to be drawn out.

US Refiners Aim to Lock in Crude Volumes after Getting Burned by Shut-ins:  Reuters Sources

U.S. refiners and other buyers of crude oil are reworking some of their supply contracts to guarantee volumes after many were cut off unexpectedly when a price collapse this spring led drillers to curtail production, sources said.

The effort reflects concern in the refining industry about the possibility of another drop in oil prices as world markets continue to reel from the economic fallout of the coronavirus outbreak.

Sellers will likely be forced to agree to the terms as buyers remain scarce in the oil market, traders and analysts said and Reuters reported.

Normally a drop in prices is good for refiners, but only when they can get their hands on the cheap supply.

Daily Forecast

The price action suggests that traders are giving OPEC+ the benefit of the doubt that all of its participants will follow-through with their pledges to cut production. If the laggard producers do compensate over the next three months for their overproduction, that will effectively take extra barrels out of the market, even if OPEC+ does not extend its record 9.7 million barrels per day supply cut beyond July.

Additionally, comments from global oil traders Vitol and Trafigura on a rebound in oil demand in June, reported by Bloomberg, also buoyed the market, ANZ Research said. This news seemed to offset any concerns over a spike in coronavirus cases in the United States.

For a look at all of today’s economic events, check out our economic calendar.