Oil tops $42 as prospects for better Opec deal compliance buoy stocks

Brent oil rose to above $42 a barrel on Friday, adding to gains in the previous session, after Opec producers and allies promised to meet supply cuts and on signs of demand, hit by the coronavirus crisis, recovering.

Iraq and Kazakhstan, during a meeting of an Opec+ panel on Thursday, pledged to comply better with oil cuts, sources said. This means curbs by the Organization of Petroleum Exporting Countries and allies, known as Opec+, could deepen in July.

“There is enthusiasm in the market that oil supply is still under control,” said Paola Rodriguez Masiu, analyst at Rystad Energy. “A positive Opec+ meeting does that and yesterday’s session helped renew confidence.” Brent crude was up $1.00, or 2.4%, at $42.51 by 1332 GMT after hitting $42.89, its highest since June 8. US West Texas Intermediate (WTI) crude climbed $1.32, or 3.4%, to $40.16.

“The key takeaway is that Opec+ compliance will improve in the coming months,” said Stephen Brennock of broker PVM.

Both contracts rose about 2% on Thursday and are heading for weekly gains of more than 9%.

Brent has more than doubled since hitting a 21-year low in April, helped by record OPEC+ supply cuts of 9.7 million barrels per day (bpd), or 10% of world demand, and an easing of government lockdowns imposed to control the coronavirus.

Fuel demand in Europe is staging a gradual recovery after the height of the lockdowns in April but remains well below normal, data from several countries shows.

In a further sign of market recovery, Brent on Thursday moved into backwardation, where oil for immediate delivery costs more than supply later, for the first time since March.

A premium for oil for immediate delivery usually indicates tightening supply and encourages storage to be drawn down.

US crude stocks hit another record this week, but fuel inventories fell.

Global equity markets shot higher on Friday as renewed optimism of a quick economic recovery spurred risk appetite and reduced demand for safe-haven bonds, as did a report that China will speed up purchases of US farm goods.

The dollar slid and the euro rose even as little progress was made on a 750 billion euro recovery fund at a European Union summit to discuss the stimulus and the European Central Bank chief warned that the region’s economy was in a “dramatic fall.” Stocks in Europe rose almost 1% and Wall Street opened sharply higher, with the Nasdaq surging above the 10,000 mark again, on track to set a record closing high. The tech-heavy index was about 0.3% off its all-time peak.

The US economy is re-opening despite a rising number of COVID-19 cases and some states warning they could re-impose shutdowns, noted Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

“There’s a degree of caution and there will be a return to a normal economic environment sooner rather than later, by getting in front of the pandemic,” Ghriskey said. “There will be renewed outbreaks and you could see shutdowns again, but it seems like the government is prepared for this second wave.” MSCI’s gauge of stocks across the globe gained 0.54% while the pan-European STOXX 600 index rose 0.68%. Emerging market stocks rose 0.70%.

On Wall Street, the Dow Jones Industrial Average rose 139.82 points, or 0.54%, 199.79 points, or 0.77%, to 26,219.92. The S&P 500 gained 19.08 points, or 0.61%, to 3,134.42 and the Nasdaq Composite added 82.37 points, or 0.83%, to 10,025.42.

Investors are tugged in opposite directions by improving economic data and new breakouts of COVID-19 infections, which have caused concerns that the economy may not bounce back as quickly as hoped. California, North Carolina and a string of US cities have mandated or urged mandatory mask use to contain spiraling coronavirus cases as at least six states set daily records.

Mainland China reported 32 new coronavirus cases as of the end of June 18, 25 of which were reported in Beijing, China’s National Health Commission said.

ECB President Christine Lagarde called on EU leaders to agree on their recovery plan quickly, diplomatic sources and officials said. The leaders are divided over its final size but hope a deal will be struck in July.

The dollar slipped overnight. The dollar index rose 0.138%, with the euro down 0.12% to $1.1189 and the Japanese yen up 0.01% versus the greenback at 106.96 per dollar.

Demand for safe German government debt was little changed, with the benchmark 10-year Bund yield at -0.411%. Benchmark 10-year notes rose 2.8 basis points to yield 0.7118%.

Spot gold added 0.9% to $1,737.93 an ounce.

Latin American stocks and currencies ticked up on Friday, with most currencies set for steep weekly losses as political ructions and fears of the coronavirus pushed money into safe havens. Brazil’s real, which rose 0.1% for the day, underperformed its peers by a wide margin for the week, with a weekly loss that may exceed 6%.

Agencies