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  • Oil rose past $40 per barrel on Wednesday, three months after oil prices plunged over 30% at the worst level since the Second Gulf War.
  •  In early European trading, Brent crude rose to $40.12 a barrel, its highest level since the coronavirus-driven market crash in March.
  • By the US morning, it had pulled back below that significant milestone, and was trading at $38.92 per barrel as of 12.50 p.m. GMT (7.50 a.m. ET).
  • Oil spiked Tuesday and early Wednesday on reports that OPEC+ members are favouring extension of production cuts currently set to end in June.
  • The cartel could meet to discuss those cuts as early as Thursday, Reuters reported.
  • However, Bloomberg cast doubt on that suggestion, saying the meeting may no longer take place.
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Oil briefly rose above $40 per barrel on Wednesday on reports that Russia and several other OPEC+ members signaled an inclination for an extension of production cuts by one month, but later fell as traders began to question if that extension will happen.

Oil’s international benchmark, Brent crude, rose 2.1% to $40.12 in early European trading, but fell to below $39 per barrel by 12.50 p.m. GMT (7.50 a.m. ET).

“The market has priced in an extension which may now not materialize,” said Ole Hansen, head of commodities strategy at Saxo Bank said, as reported by Bloomberg.

US benchmark West Texas Intermediate also rose in early trade before sliding, trading at $36.19 per barrel as of 12.50 p.m. GMT, a drop of around 1.8% on the day. 

Oil had risen on hopes that the world’s biggest oil producers are expected to meet as early as Thursday, according to Reuters which cited sources as saying OPEC+ members may bring forward a meeting originally scheduled for June 9-10

However, it fell after Bloomberg reported that the meeting may no longer take place, unless “all nations first agree to cut output by as much as they promised.”

While Russia and other members are eyeing one-month extensions to production cuts, Saudi Arabia is reportedly in favour of as long as three months more cuts.

“Energy markets were not entirely confident that Russia would play ball for another month, so oil prices had a little room to climb higher,” Edward Moya, senior market analyst at OANDA, said Tuesday as prices moved towards $40.

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“The oil market seems to be following the stock market optimism that for now has been unbreakable despite a looming China risk and rising social unrest in the US,” he said in a note.

Global economic recovery has fuelled the improvement in the outlook for crude demand, but soon enough, rising trade tensions, curfews across the US, and permanent labor destruction will dampen the outlook, he said. 

While crude demand improves, WTI is still facing “huge resistance” from the gap that grew out of the Saudi-Russia price war.

In April, the US benchmark oil price plunged to a historic low of almost -$40 per barrel as demand evaporated during the COVID-19 outbreak, and futures contracts expired, forcing traders to sell at a loss to avoid having to take physical delivery of oil.

Brent also plunged, dropping to lows not seen since the Second Gulf War in 2003, falling to just above $20 per barrel.

For WTI to regain demand levels and break out higher, either the oil market will have to rebalance, or demand outlook should weigh major breakthroughs in finding a vaccine for COVID-19, and for US-China to play nice, Moya said.

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