Crude-oil futures ended sharply higher Friday, supported by news that major oil producers will convene Saturday to discuss plans for extended productions cuts, while an unexpected monthly climb in U.S. jobs suggested a recovery in energy demand mat be at hand.
The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, said they would hold meetings via videoconference on Saturday, with the OPEC member conference set to begin at 2 p.m. Central European time, or 8 a.m. Eastern time, and an OPEC+ conference to begin two hours later.
The major oil producers are expected to reach an official agreement to extend record oil production cuts of 9.7 million barrels a day through July, according to The Wall Street Journal . The group decided to move forward a meeting that had been planned for June 9-10, after a tentative plan to meet on June 4 fell apart.
The weekend meeting is being viewed as a signal to crude investors that the group will deliver substantive near-term measures to stabilize oil’s value.
“It’s all about the OPEC+ meeting,” wrote Bjornar Tonhaugen, Rystad Energy’s head of oil markets, in a Friday note. “As it was initially intended to happen on Thursday, when that did not materialize, prices fell because traders sensed a lack of agreement between the extended group’s producing countries.”
“Now the mood has changed again and prices rose, following news that a consensus may have been reached and a meeting is across the corner,” he wrote.
Meanwhile, U.S. data released Friday showing that the nation regained 2.5 million jobs in May and the unemployment rate fell to 13.3% from 14.7% in April, with that data leading to a rally in the stock market.
“The oil price rally went into overdrive after a surprisingly robust U.S. labor market report,” said Edward Moya, senior market analyst at Oanda, in a market update. “The economic recovery is already happening and that could do wonders for crude consumption.”
West Texas Intermediate crude for July delivery /zigman2/quotes/211629951/delayed CL.1 -0.15% rose $2.14, or 5.7%, to settle at $39.55 a barrel a barrel on the New York Mercantile Exchange.
Global benchmark Brent saw its August contract climb $2.31, or 5.8%, to end at $42.30 a barrel on the ICE Futures Europe.
For the week, WTI front-month U.S. oil futures were up 11.4%, while Brent climbed 11.8%m according to Dow Jones Market Data. Both benchmarks tallied their sixth consecutive weekly gain and marked a fourth session at their highest settlement since March 6.
Oil had suffered substantially from closures intended to curb the spread of COVID-19, which drove down appetite for the commodity. Reopening plans across the globe, however, have injected new life into the asset.
OPEC member Saudi Arabia and nonmember Russia had agreed on Wednesday to extend current OPEC+ supply cuts of 9.7 million barrels per day through July, but negotiations toward an official deal had been held up as the two countries pointed out that other OPEC+ members have failed to comply with their pledged reductions, according to The Wall Street Journal.
“The important point is that Saudi Arabia and Russia are in agreement on the extension even if it is only for a month,” Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch. “If the global rebalancing hasn’t tightened a month from now or the price recovery falters, they will likely extend again in August; it’s probably a monthly review process at this point.”
Meanwhile, media organization Argus , citing OPEC delegates, reported Thursday that the Joint OPEC-Non-OPEC Technical Committee, which advises OPEC+ and offers recommendations on production adjustments, will meet on June 17, while the Joint Ministerial Monitoring Committee, which monitors compliance with OPEC+ production cuts, may meet on June 18. The monthly OPEC oil report is due out on June 17.
News of a tentative pact to extend production cuts comes after Iraq and Nigeria committed to improve their adherence to any future agreements, WSJ reported . Iraq cut only half of its agreed one million barrels a day in May and Nigeria cut 52% of the amount promised as a part of the April pact, the paper reported.
A sustainable recovery for oil is “probably premised on sustained production cuts, coupled with an uptrend in demand,” said Steeves. “That demand recovery is a bit jagged but higher overall.”
In the U.S., Baker Hughes /zigman2/quotes/205323712/composite BKR +1.62% on Friday reported that the number of active U.S. rigs drilling for oil declined by 16 to 206 this week. The number of oil rigs has fallen weekly since mid-March, implying further declines in domestic crude output.
Energy traders are also watching a storm that has brought flooding to Mexico and Central America. Cristobal has strengthened back into a tropical storm from a depression Friday afternoon and the National Hurricane Center expects it to move over the central Gulf of Mexico on Saturday. It could impact some oil and natural-gas production in the region, which would be bullish for prices.
On Friday, however, July natural gas fell 2.2% at $1.782 per million British thermal units, ending 3.6% lower for the week.
Also on Nymex, July gasoline rose 5.6% to $1.2136 a gallon, finishing 12.5% higher for the week, and July heating oil added 7.1% to $1.1506 a gallon, tacking on 11% for the week.