…As India agrees with China on peaceful resolution of border tensions***
Oil climbed on Monday after major producers agreed to extend a deal on record output cuts to the end of July and as China’s crude imports hit an all-time high in May.
Brent crude was up 51 cents, or 1.2 per cent, at $42.81 per barrel, by 0628 GMT, while U.S. West Texas Intermediate (WTI) crude rose 32 cents, or 0.8 per cent, to $39.87 a barrel.
Both hit their highest since March 6 earlier in the session, at $43.41 and $40.44, respectively.
Brent has nearly doubled since the Organisation of the Petroleum Exporting Countries (OPEC), Russia and allies, collectively known as OPEC+, agreed in April to cut supply by 9.7 million barrels per day (bpd) during May-June to prop up prices that collapsed due to the coronavirus crisis.
On Saturday, OPEC+ agreed to extend the deal to withdraw almost 10 per cent of global supplies from the market by a third month to end-July.
Following the extension, top exporter Saudi Arabia hiked its monthly crude prices for July.
But Howie Lee, Economist at Singapore bank OCBC, noted that the latest deal had fallen short of market hopes for a three-month extension of output cuts.
He said both benchmarks would require stronger bullish factors to propel prices back to where they were before March 6, when they crashed after OPEC and Russia initially failed to reach an agreement on supply cuts.
“It’s a big gap there; you need a strong conviction to go from $43 to pre-crash levels,’’ Lee said, referring to Brent being above $50 before the March crash.
Low prices have drawn Chinese buyers to boost imports.
Purchases by the world’s largest crude importer rose to an all-time high of 11.3 million bpd in May.
The OPEC+ move to extend cuts to July is, however, expected to lead to a supply deficit by October, aiding prices in the longer run, OCBC’s Lee added.
Market participants are now eyeing compliance among OPEC members such as Iraq and Nigeria, which exceeded production quotas in May and June, for trading cues, analysts said.
Libya’s supply could also rise soon as two major oilfields have reopened after months of a blockade that shut off most of the country’s production.
“The potential return of Libyan output could also cause considerable challenges for the OPEC leadership,’’ said Helima Croft, Head of Global Commodity Strategy at RBC Capital Markets.
Even as oil prices recovered, they are still well below the costs of most U.S. shale producers, leading to shutdowns, layoffs and cost-cutting in the world’s largest producer.
The number of operating U.S. oil and natural gas rigs fell to a record low for a fifth week in a row in the week to June 5, according to data from Baker Hughes Co.
Nearly 30 per cent of the U.S. offshore oil output was also shut on Friday as tropical storm Cristobal entered the Gulf of Mexico.
The storm weakened to a tropical depression on Monday morning.
Higher oil prices could invite the reinstatement of supply, notably the U.S. shale, that was planned to be shut-in in June and July, BNP Paribas’ Harry Tchilingurian said.
“OPEC+ faces a Catch-22 situation,’’ he said.
“The resumption of output … may moderate the pace of rebalancing of the oil market.’’
In the meantime, India and China have agreed to “peacefully resolve” the stand-off between their troops on the borders in the Himalayas, India’s Foreign Ministry said on Sunday, a day after the neighbours held high-level military talks.
Indian and Chinese commanders held discussions spanning several hours on Saturday at a high-altitude meeting point that straddles Moldo, on the Chinese side, and Chushul on the Indian side.
The talks took place in a “cordial and positive atmosphere,” India’s foreign ministry said in a statement.
“Both sides agreed to peacefully resolve the situation in the border areas in accordance with various bilateral agreements and keeping in view the agreement between the leaders that peace and tranquillity in the India-China border regions is essential for the overall development of bilateral relations,” it said.
India and China noted that this year marked the 70th anniversary of establishment of their diplomatic relations and “agreed that an early resolution would contribute to the further development of the relationship,” it said.
“Accordingly, the two sides will continue the military and diplomatic engagements to resolve the situation and to ensure peace and tranquillity in the border areas.”
Thousands of Indian and Chinese forces have faced off in the Pangong Lake and Galwan valley in the Ladakh region since early May, accusing each other of trespassing on each country’s boundaries, Indian media reported.
Brawls involving fist-fights, stone-pelting and shouting matches occurred after Chinese troops entered deep inside Indian territory and ignored warnings to leave, the reports said.
The Chinese troops were camping at the sites, having erected tents and brought material for the construction of bunkers. India also deployed additional units in the area.
Saturday’s talks, in which both sides were led by area commanders of the rank of lieutenant general, were at the highest-military level so far, showing the seriousness of the recent conflict.
Multiple talks between local military officers had failed to end the impasse. Indian and Chinese foreign ministry officials also discussed the boundary tensions on Friday.
Sunday’s statement suggested there was no tangible outcome to the row as the focus of latest talks was reportedly to get both the Indian army and the People’s Liberation Army to pull back additional troops and equipment deployed in the area.
The likely provocation for the face-off was China’s stiff opposition to India’s laying of a key road in the area around the Pangong Lake, and the construction of another road connecting the Galwan valley to an airstrip, Indian reports said.
India has sped up infrastructure projects, including construction of roads and bridges in the remote border regions near China.
Beijing has long carried out such activities, which have been criticized by Indian officials.
U.S. President Donald Trump recently offered to mediate between both sides to resolve the dispute, but both New Delhi and Beijing maintained they were holding talks on the matter.
India and China dispute several sections along their ill-defined, 3,500-kilometre border, most of which runs along the Himalayan range.
The two countries fought a war over their border in 1962.
These are the worst India-China border tensions since a 2017 face-off at the uninhabited Doklam plateau in the eastern Himalayas, which continued for more than 70 days.
The stand-off saw troops dispatched to Doklam from both sides after China attempted to build a road through the plateau, which is claimed by Bhutan, a close ally of India.
– Reuters with additional reports of dpa