The U.S. benchmark WTI Crude jumped to $40 a barrel early on Friday with oil prices heading for a strong weekly gain, after the OPEC+ group had laggards pledge full compliance with the supply cuts and the oil market's price structure showed signs of demand recovery.
As of 10:57 a.m. EDT on Friday, WTI Crude up 3.27 percent at $40.05 and Brent Crude was up 2.51 percent at $42.48, with the benchmarks set for a weekly gain of around 10 percent, after the first weekly loss in seven weeks last week.
On Friday, oil prices reacted to bullish signals both in demand and supply. OPEC+ held its Joint Ministerial Monitoring Committee (JMMC) on Thursday and said it was confident that all members would reach their respective production quotas as laid out in the Declaration of Cooperation-eventually. Iraq and Kazakhstan submitted their plans to compensate for not sticking to their quotas in May, while the other laggards in the OPEC+ pact have until Monday to submit their so-called "compensation schedules" detailing how they would offset in the third quarter the over-production from May and June.
On the demand side, the Brent Crude price structure flipped to backwardation on Friday, signaling a tightening of the physical oil market.
Backwardation is the market situation that typically occurs at times of market deficit and in it, prices for front-month contracts are higher than the ones further out in time.
Bullish predictions about the demand recovery from oil trading giants Vitol and Trafigura - who told Bloomberg that they see a rapid recovery - may have also helped a more optimistic sentiment, Steen Jakobsen, Chief Investment Officer at Saxo Bank, said in a commentary on Friday.
"Weighing against a continuation of the rally remains the risk of rising US production eating some of the cake that OPEC+ was expected to share once supply cuts are eased," Jakobsen noted.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More