Oil prices top $40 as OPEC+ extends production cuts

West Texas Intermediate crude oil topped $40 a barrel for the first time in three months after OPEC and its allies agreed to extend historic production cuts and Saudi Arabia raised prices by the most in two decades.

The group, known as OPEC+, extended its nearly 10 million barrel per day output cut by one month – through the end of July – in an effort to restore supply and demand imbalances and boost energy prices. The production cuts represent about 10 percent of global supply.

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WTI, the U.S. benchmark, rallied as much as 2.25 percent to $40.44 per barrel before trimming its gains. Brent crude oil, the international standard, was higher by 1.23 percent at $42.82 per barrel.

“Oil prices continue the greatest comeback in history,” Phil Flynn, senior market analyst at the Price Futures Group, told FOX Business. “OPEC plus is proving they will do whatever it takes by agreeing to extend cuts and getting the cheaters to comply.”

Stay-at-home orders aimed at slowing the spread of COVID-19 removed 30 million barrels per day of global demand at a time when Saudi Arabia and Russia, two of the largest suppliers, were pumping out record amounts of oil due to a price war.

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The sharp drop in demand and record production contributed to the May WTI contract plunging below zero just ahead of expiration. WTI prices have surged 304 percent since the May contract settled at $10.01 a barrel.

Saudi Arabia, the biggest OPEC producer, on Sunday hiked prices by as much as $7.30 a barrel for Asian customers, the most in 20 years, virtually eliminating all of the price discounts the kingdom initiated during its price war with Russia, according to a price sheet seen by Bloomberg.

The price hike “sent a message to the global markets” and should encourage refiners and countries to “drawdown their inventories and further reduce the storage glut,” Flynn said.

The oil glut has shrunk amid a backdrop of lower production and increasing demand as the U.S. economy continues to reopen from COVID-19 lockdowns. New York City on Monday entered phase one of its reopening plan.

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“Forty dollar oil is a feel good story because $40 a barrel oil is a sign that the economy is recovering, which is welcome news for both consumers and producers of oil,” Flynn said.