Oil Gains After OPEC Production Cuts Extension; WTI Tests $40 a Barrel as Global Economy Revs Factory Engines

China trade data shows record crude imports in May as factories prepare for a jump in global demand as OPEC turns the supply screws and cracks down on recalcitrant producers.

Global oil prices climbed higher Monday, pulling U.S. crude closer to $40 a barrel, as OPEC cartel leaders and non-member allies agreed to extend their record production cut agreement through to the end of July.

The so-called OPEC+ agreement, which includes members of the price-setting cartel along with Russia and Mexico, following a virtual meeting Saturday, will see 9.6 million barrels of oil -- around 10% of global output -- held back from the market each day until then end of next month. From the end of July until December, the cartel previous agreed to ease that production cut level to around 7.7 million barrels per day. 

"The alliance also agreed that countries which have fallen short of hitting their quota so far, will improve compliance in the coming months, and in fact will make up for the lack of compliance so far," said ING's head of commodity strategy Warren Patterson. "However given that there is no enforcement mechanism, it is difficult to believe that the likes of Iraq will suddenly start to comply with the deal."

Front-month WTI futures contracts for July delivery, the benchmark for U.S. prices, were last seen 36 cents higher from their Friday close in New York and changing hands at $39.91 per barrel, the highest since March 9.  

Brent futures for August delivery, which benchmark around 60% of global crude purchases, gained 46 cents to trade at a three-month high of $42.77 per barrel.

Price gains were supported, as well, by trade data from China over the weekend which showed a 19.2% surge in crude imports last month, the largest on record and the equivalent of 11.3 million barrels per day. The year-to-date monthly average, the data indicated, is holding at around 10.53 million barrels. 

The data suggests the world's second-largest economy is moving towards a full recovery -- at least in terms of activity -- following its coronavirus pandemic, a condition economies in Europe and the United States could be expected to reaching in the coming moves. 

The moves also provided solid support for U.S. oil majors in pre-market trading, with Exxon Mobil Corp  (XOM) - Get Report rising 4.84% to $55.65 each and domestic rival Chevron Corp  (CVX) - Get Report marked 3.1% higher at $103.90 each. 

Collectively, the two Dow components will add around 40 points to the 30-stock benchmark at the opening bell and have gained 77% and 91% respectively since their March 23 lows.