Oil prices remained steady on Monday. News about the possible extension of the OPEC and Russia deal on oil cuts helped oil rates to show little variation. However, tensions between Beijing and Washington are holding people back from making new decisions.
Brent crude gained 19 cents, or 0.5%, and traded at $38.03 a barrel.
WTI crude dropped 11 cents, or 0.3%, and settled at $35.38 a barrel.
OPEC and Russia are getting closer to an agreement on the duration to increase oil production cuts.
OPEC+ will hold a virtual meeting this week
Algeria has suggested that OPEX+ will hold a meeting on the 4th of June instead of the previously planned date, the 9th of June.
Producers of OPEC and its allies are considering extending their production cuts into July and August.
The crude oil market remains oversupplied. In the US, the number of rigs drilling for crude declined for the 11th week. There is still a chance that a persistent advance in crude oil prices could persuade producers to turn their taps on again. On the other hand, the demand for the commodity in China rose to almost pre-coronavirus levels.
Back in April, Oil-producing countries agreed to cut the supply of crude oil for May and June. According to the agreement, the states would scale back to the 7.7 million BPD reduction level from July through to December. However, the members of the group decided to make plans for shipping oil in June. Saudi Arabia has already been talking about increasing more substantial cuts.
JBC Energy analysts stated that crude prices had not reacted too much to the reports of the possible output cut extension. This fact can be seen as a hint that the market has already priced in too much optimism.
Many of the significant players are twiddling their thumbs ahead of the OPEC meeting. Russia is expected to be the main obstacle for any extension. Besides, they are not likely to agree to an extension which stretches beyond two months. For this reason, analysts believe that the new OPEC+ deal will extend the output cuts until the 1st of September.
China-US tensions could hurt crude prices
The tensions between China and the US are also encouraging some caution in the market. US President Donald Trump directed to start the process of ending the special treatment of Hong Kong. Washington’s move is likely to generate a new drive of volatility in the world market.
Beijing warned of revenge over the US’s moves over Hong Kong. China has asked state-owned companies to stop purchases of soybeans and pork from the US. The country could increase the scale of restrictions, including additional farm products in case the US took further action.
Harry Tchilinguirian, the head of commodity research at BNP Paribas, stated that the possibility of intensified tensions poses a risk for the rally in crude prices.
Manufacturing data has also shown that European and Asian factories were struggling since lockdowns, as the COVID-19 pandemic kept demand in check.