Oil Rallies On Hopes That OPEC+ Will Meet On Saturday

Oil Video 05.06.20.

Saudi Arabia States That OPEC+ Is Working To Hold Its Meeting On Saturday

Oil prices continued their upside move after Saudi Arabia’s energy minister said that OPEC+ was working to hold its widely anticipated meeting on Saturday.

Earlier, traders had some doubts about whether the OPEC+ meeting will take place this week and whether leading OPEC+ members will be able to push Iraq and Nigeria to fully comply with the original deal.

At this point, the market has no doubts that OPEC+ will be able to extend current production cuts by at least one month.

The base case scenario right now is that OPEC+ continues with current production cuts of 9.7 million barrels per day (bpd) for the month of July and then meets to discuss the market situation.

If necessary, OPEC+ will be able to extend production cuts for August. In case Saudi Arabia and Russia see that the oil market is strong enough, OPEC+ members will be able to return to the original schedule which implies production cuts of 7.7 million bpd until the end of the year.

Recovery Hopes Serve As An Additional Upside Catalyst For Oil

The U.S. equity market is in a very good mood today following the release of better-than-expected Unemployment Rate and Non Farm Payrolls reports.

The optimism about the speed of the economic recovery from the coronavirus crisis is a major catalyst for the recent oil price upside. The problems of the oil market cannot be solved by simply cutting production rates as the demand side of the supply/demand balance should improve in order to stabilize the market.

The recent indications that the shock to the U.S. economy may be not as bad as expected are providing additional support to the oil market. If the U.S. manages to recover most of its oil demand in the same fashion as China, oil traders will likely ignore the temporary weakness in Europe and push oil prices higher.

Now that the U.S. Non Farm Payrolls report has contributed to oil’s upside, traders will closely watch the U.S. Initial Jobless Claims report next week to see whether the positive employment trend is confirmed by the most recent data.

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