Oil prices continue to extend gains, having accelerated the rally on Friday. Brent crude has neared the $43 handle in recent trading and stay elevated during the European session as traders express optimism over the potential recovery in energy demand as the global economic activity is starting to pick up after the pandemic crisis. Overnight, two of the world’s biggest commodity trading houses, Trafigura and Vitol, pointed to a recovery in oil demand in June. According to estimates from Vitol, global oil consumption is rising by 1.4 million barrels a day every week this month.
Also, the market is supported by the news that Iraq and Kazakhstan vowed to compensate for the recent overproduction over the next three months. If so, extra barrels will be effectively taken out of the market. Besides, the OPEC-led meeting of the Joint Ministerial Monitoring Committee showed that compliance with production cuts came in at 87% in May.
Against this backdrop, oil prices received a decent boost on the last trading day of the week and could extend gains if risk sentiment remains upbeat in the short term. The barrel is now nearing the $43 handle, coming closer to March 9 highs around $43.30. However, further bullish attempts at the $43 level could attract profit-taking ahead of the weekend. In this scenario, Brent needs to hold above the $41.50 figure in order to avoid a deeper pullback from local tops.
In a wider picture, the oil market remains vulnerable despite the current rally as the number of coronavirus cases continues to hint at a second wave of the pandemic. Besides, the global economy will take years to recover from the virus-crisis. Escalating tensions between the United States and China could also derail the current recovery in oil prices as the market is very sensitive to the developments on this front.
In the immediate term, Brent crude will likely continue to target the $43 barrier and could even challenge it but the prices will hardly be able to stage a daily and weekly close above this level as there is a high possibility of profit-taking.