Oil Prices Climb in Face of Outbreaks and OPEC+ Shortfalls

Despite the rocky ground that oil prices have found themselves in over the last few days, prices rose around US$1 per barrel on Monday reports Reuters. As of 11:51 a.m. CDT, WTI prices had risen by US$1.06 per barrel to US$39.55, an increase of 2.8 percent, while Brent had increased 74 cents in value, a 1.8 percent rise, to sit at US$41.76 per barrel.

PEMEX does not release trading results of the Mexican crude basket until the evening, but on Friday it closed on a small increase of 22 cents at US$33.89 per barrel from US$33.67 on Thursday.

Today’s increases have come after a series of losses felt following the outbreak of new virus cases in several southern US states and various other nations including China.

The upsurge in positive cases in cities that have recorded falling virus figures, including Beijing which went two-months without a new case, sent ripples of concern through the markets last week. Traders and companies have been badly burned during the past few months as oil demand fell off a cliff due to lockdown and social distancing measures implemented by governments around the world.

Aside from the virus’ threat, the monumental OPEC+ production cut agreement which has delivered three straight months of price increases for Brent crude, looks like it will fall short of its 9.7MMb/d cut goal. The historic agreement, to which Mexico committed a production cut of 100Mb/d, has been integral to righting market prices after oil went negative in April.

Rystad Energy, a Norwegian energy consultancy, reports that Iraq, a formal OPEC country member, will miss its production cut goal. Iraq and Nigeria missed their initial targets and have now been asked to make up for the shortcoming. But Iraq, which produced 650MMb/d over its target output level can only reduce its production by between 300Mb/d and 500Mb/d Rystad says.

The country had promised to cut 57Mb/d from its 3.75MMb/d July target, but Rystad Energy reports that even with the aid of operators in the country including BP, ExxonMobil and Lukoil, “achieving any output target below 4 million bpd is overambitious given Iraq’s dire economic need for oil revenues right now.”

If Iraq fails to meet its commitment, worries may grow among traders and the market which is still reeling from the price crash. Signs of climbing global inventories would be particularly damaging.