Oil futures flew past $40 per barrel for the first time since March on Wednesday, extending impressive recent gains built amid expectations that Opec and allied producers will extend record production cuts at a crucial meeting likely to take place on Thursday.

The rally has also gained added momentum from the easing of travel restrictions and economic lockdowns in the wake of the Covid-19 outbreak, which crippled fuel demand.

Topping $40

Brent crude futures for August climbed above $40 a barrel early Wednesday, the highest level since 6 March. Brent was last trading at around $40.20 per barrel. The international benchmark had added more than 3% in the previous day.

US benchmark West Texas Intermediate (WTI) also climbed 3% to fetch around $37.90 a barrel, also the highest since 6 March.

Opec and other major producers including Russia, a group known as Opec+, are likely to extend unprecedented output cuts of 9.7 million barrels per day into July or August as they seem bent on ensuring the rally stays on course.

They are likely to hold an online meeting on Thursday, although debate is still continuing about the exact date of the gathering to be attended by top world producers Saudi Arabia and Russia.

The gathering was originally set for 9 June but Saudi Arabia is keen for it to take place this week so it has more time to inform customers of July allocations.

The duo’s commitment to stringent cuts since the beginning of May has been the main catalyst for the relentless rally, which began after US futures tumbled below zero for the fist time in history on 20 April.

Opec+ cuts in focus

The Opec+ cuts, agreed in April, are due to run through May and June before tapering to 7.7 million bpd from July to December.

Opec leader Saudi Arabia is pressing allies to keep the deeper cuts in place for longer lest the nascent global economic recovery loses steam with negative consequences for oil consumption.

The demand picture is though beginning to improve as economic activity picks up around the globe and many countries move to remove travel restrictions, which have grounded airliners and impeded shipping and road transport.

"As virus-related lockdown measures continue to be lifted, we expect that demand will gradually recover," Capital Economics said in a note, estimating that global oil demand will fall to just under 92 million bpd on average in 2020.

This compared with just more than 100 million bpd in 2019 before the pandemic left a trail of destruction across the globe.

Production

Brent flies past $40 per barrel for first time since March