WASHINGTON (DTN) -- Oil futures nearest delivery on New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved sharply higher in overnight trade following news Organization of the Petroleum Exporting Countries and Russia-led producers have agreed to hold a virtual meeting Saturday when the group is expected to extend their 9.7 million barrels per day (bpd) agreement into summer months even as the global economy is starting to show persistent signs of demand recovery.
The announcement follows reports Iraq and Nigeria removed the objection to deepen their quotas, with delegates pledging to improve the overall compliance in the coming weeks. Saturday's discussion will be centered on the mechanisms to monitor the timely compliance with the agreement, a prerequisite for extended supply cuts. Saudi Arabia and Russia have reached a tentative deal to rollover 9.7 million bpd in output curbs for at least one month, with delegates from Saudi Arabia pushing for a two-month extension.
Markets remain cautiously optimistic that some arm twisting could do the trick and force laggards into aggressive cuts pledged under the agreement. This would mean, however, unwilling participants would need to double down on those pledges and deliver a portion of those cuts retroactively. The early signs of discourse, however, might suggest producers will struggle to manage the volatile market in the weeks ahead as global oil demand recovers.
The producers previously agreed to cut supply by 9.7 million bpd during May and June to prop up prices which collapsed due to demand destruction caused by the coronavirus crisis. Under the April 12 agreement, production cuts would taper down to 7.7 million bpd from July to December.
Russian Energy Minister Alexander Novak projected the market might see a deficit of 5 million to 7 million bpd as soon as next month, dependent of the agreement OPEC+ members reach. Global inventories remain excessively high, however.
On the economic calendar, the market awaits May's employment report to be published by the Bureau of Labor Statistics at 8:30 a.m. ET, which is expected to show fewer jobs losses than previously estimated. Nonfarm job losses are projected to improve from 20 million to 7.5 million in May, with headline unemployment rate of around 20%, the highest since the Great Depression.
In early trading, NYMEX West Texas Intermediate July futures gained $0.85 to trade near $38.26 per barrel (bbl) and Brent crude for August delivery jumped above $41 bbl, advancing over $1 bbl in overnight trade. NYMEX RBOB July futures strengthened 3.05 cents to a better than 12-week high $1.1795 gallon and NYMEX ULSD futures traded higher at $1.1094 a gallon.
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