Oil jumps to highest level since March after OPEC+ reaches a supply compromise

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HUNTINGTON BEACH, CA - APRIL 20: A man walks on a path in front of an oil derrick near the Huntington Beach Oil Fields on April 20, 2020 in Huntington Beach, California. Oil prices traded in negative territory for the first time as the spread of coronavirus (COVID-19) impacts oil demand. Michael Heiman/Getty Images/AFP

Brent crude oil futures rose to just under $50 a barrel on Friday as expectations of a U.S. economic stimulus package and the possibility of a vaccine for the coronavirus overrode rising supply and increased COVID-19 deaths.

A bipartisan $908 billion coronavirus aid plan gained momentum in the U.S. Congress.

Brent gained 1.11% to settle at $49.25 per barrel after hitting its highest since early March at $49.92. West Texas Intermediate rose settled 0.99% higher at $46.26 per barrel after touching a high of $46.68 a barrel. Both benchmarks are set for a fifth straight week of gains.

“We’re higher, despite super bearish events – it’s all about stimulus,” said Bob Yawger, director of energy futures at Mizuho in New York. “You can’t go home short this weekend because they could sign a deal this weekend.”

OPEC+, comprising of the Organization of the Petroleum Exporting Countries and its allies, agreed on a compromise to increase output slightly from January but continue the bulk of existing supply curbs to cope with coronavirus-hit demand.

OPEC and Russia on Thursday agreed to ease deep oil output cuts from January by 500,000 barrels per day with further as yet undefined increases on a monthly basis, failing to reach a compromise on a broader policy for the rest of 2021.

OPEC+ had been expected to continue existing cuts until at least March, after backing down from plans to raise output by 2 million bpd.

The increase means the group will reduce production by 7.2 million bpd, or 7% of global demand from January, compared with current cuts of 7.7 million bpd.

While some analysts saw an undersupplied oil market even under the new higher supply quotas, others expected the barrels would tip the market into oversupply. Wood Mackenzie analysts, for example, expect that if the increases continue through March there might be 1.6 million unwanted bpd in the first quarter.

The premium of Brent crude futures for nearby delivery to future months is at its highest since February, a structure called backwardation, which usually points to supplies tightening up and suggests receding fears of a current glut.

U.S. production, meanwhile, has recovered from the two-and-a-half-year lows touched in May mainly because shale producers have brought wells back online in response to rising prices.

The U.S. oil rig count, an indicator of future production, rose 10 to 241 last week, the highest since May. This week’s data from energy services firm Baker Hughes Co is due at about 1 p.m. ET.

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