Oil prices rose around 1% on Friday after OPEC producers and their allies promised to meet their commitments on supply cuts and signals about recovery in demand.
Brent crude LCOc1 futures rose 35 cents, or 0.8%, to $41.86 a barrel by 04:46 GMT. West Texas Intermediate (WTI) crude CLc1 futures climbed 38 cents, or 1%, to $39.22 a barrel. Both contracts rose around 2% on Thursday and are heading for weekly gains of 8%.
Plans to compensate for Iraq and Kazakhstan’s supply cuts commitments supported the market. The promises were made in a panel following the compliance with the decision taken by OPEC +, the Organization of Petroleum Exporting Countries and its allies.
If excess supply is compensated for three months, even if OPEC + record cuts do not extend the daily supply cuts of 9.7 million barrels beyond July, more will be reduced from the market.
The near-term optimism on these compensated supply cuts has eased the pressure on storage, causing Brent to turn into a “backwardation” on Thursday for the first time since early March, with the August contract rising to 9 cents above September LCOc1-LCOc2 on Friday.
Backwardation occurs when near-term contracts are traded at higher prices than in outer months due to abnormal conditions. Normally oil futures are traded in ‘contango’, outer months reflect higher prices and the cost of holding oil.
Fears of reduced storage capacity, coronavirus deadlocks, and the accumulation of crude oil on the market in April over pumped by Saudi Arabia and Russia urged the market to a steep contango for up to $ 5.
The supply cuts proposed to compensate for the market in May, June, and July, and rhetorics of commitment tighten the market in the short term. However, this is not a strong sign of a wholesale recovery shift in the medium-term outlook in the market.
Crude oil stocks in the US inventories USOILC = ECI rose by 1.2 million barrels last week to 539.3 million barrels, however traders were expecting it to decrease by 152,000 barrels.
Technically, the WTI contract points to strong resistance between $ 40 and $ 41. Analysts see this level as the point where more US manufacturers will animate closed wells.