By Barani Krishnan
Investing.com - From a market that seemed bottomless a little more than a month back, oil seems unable to stop its ascent now, with global crude benchmark Brent nearing $40 a barrel Tuesday on what many thought was a foregone conclusion: OPEC will deepen cuts when it meets this week.
“The oil market seems to be following the stock market optimism that for now has been unbreakable despite a looming China risk and rising social unrest in the U.S.,” Ed Moya, analyst at New York’s OANDA said. The Dow and S&P 500 hit three-month peaks.
“The global economic recovery has done wonders for an improving crude demand outlook but sooner than later, escalating trade tensions, curfews across the nation, and permanent labor destruction will dampen the outlook.”
New York-traded WTI was up $1.11, or 3.1%, at $36.55 per barrel by 2:13 PM ET (18:13 GMT).
Brent, the London-traded global benchmark for oil, rose $1, or 2.6%, to $39.32.
Both WTI and Brent are still down 40% on the year, with Covid-19 leaving demand for fuel way off from where it stood at the start of 2020. Yet oil prices look frothy after five weeks of non-stop gains, with Brent gaining nearly 100% in May.
WTI, on the other hand, is up 360% from an end-April low of just above $10. It even hit sub-zero levels of -$37 in mid-April.
“A continuation of the oil-price rally in [the second quarter] may prove self-defeating,” Giovanni Staunovo, commodity analyst at UBS Wealth Management, said in a note.
Tuesday’s rally came as OPEC and key ally Russia moved a conference call to discuss future output cuts to Thursday from an original June 9 schedule. The two oil-producing titans sparked a selloff in oil in early March — that predated the coronavirus crisis — when they couldn’t agree on extending output cuts for the first time in more than three years.
But the pandemic and the havoc it has wreaked on the oil market, has taught both the importance of collaborating on cuts again.
The conference call on Thursday could extend supply cuts through Sept. 1, a move many analysts had expected anyway, raising questions on why the market needed to go up as much as it did.
“It’s hard to just jump into the WTI market from the long side at $36,” said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C.