The Day at a Glance | June 2 2020

OPEC+ could extend production cuts

Oil prices have continued to recover and this morning, they showed upwards momentum due to expectations of production cuts to extend for another month – on behalf of the Organization of the Petroleum Exporting Countries and its allies (OPEC+). Russia and Saudi Arabia seem to be close to reaching a consensus to extend the production cutbacks policy by 9.7 million daily barrels until July or August. A teleconference is expected to take place between members of the organization on Thursday, June 4th. According to Bloomberg reports, there was not full compliance to the cutbacks announced in May as Iraq and Nigeria failed to comply. However, the fast recovery in demand for crude oil in China, the largest importer of oil in the world, has helped relieve the excess supply and backed higher prices; even though in other parts of the world demand remains weak.

Brexit negotiations occur in a defining moment

British and European negotiators will start the last round of negotiations this week before the summit between the United Kingdom and the European Union to assess results. The likelihood of the UK leaving the EU without a trade agreement is greater every time, as the pandemic has decreased the UK`s political costs` decision to a minimum. The United Kingdom has still not proposed extending negotiations because of the pandemic and it`s speculated that within the government, the calculated political cost of carrying out Brexit without an agreement has decreased, and that COVID-19`s economic effects will cloud Brexit`s. Private analyses consider that the economic impact will be more permanent if there is no trade agreement with the EU. Various companies in the country remain closed, over-indebted and are confronting a difficult recovery because of the pandemic. If the UK doesn`t reach an agreement with the EU in the following weeks, it`s possible that during the summit the UK will announce that it will start preparations for its departure from the EU without preferential trade relations. This will force many companies to shift their exports, especially in the automotive industry, pharmaceuticals, plastics and precision tools. The scenario of Brexit occurring without an agreement is already starting to enter markets, with estimates forecasting negative interest rates on behalf of the Bank of England; even though the pound remains strong as there is still optimism about an agreement being reached.