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MELBOURNE / SINGAPORE: Oil futures rose on Tuesday, prompted by an unexpected commitment by Saudi Arabia to deepen production cuts in June in a bid to help drain the excess global market that has built up as the coronavirus pandemic crushed fuel demand.
Brent crude futures advanced 0.7%, or 22 cents, to $ 29.85 at 0650 GMT, after hitting an intraday high of $ 30.11 per barrel.
US West Texas Intermediate (WTI) futures rose 1.8%, or 44 cents, to $ 24.58 after hitting an intraday high of $ 24.77.
Saudi Arabia said overnight that it would cut production by 1 million barrels per day (bpd) in June, reducing its total production to 7.5 million bpd, almost 40% less than in April.
“This reduction in production provided excellent optics, encouraging other OPEC + members to comply and even offer additional voluntary cuts, which should accelerate the act of rebalancing the global oil markets,” said Stephen Innes, chief strategist at AxiCorp global market, in a note. OPEC + is a group made up of members of the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia.
The United Arab Emirates and Kuwait promised to reduce production by another 180,000 bpd in total.
Kazakhstan also ordered producers of large and medium oil fields, including Tengiz and Kashagan, to cut oil production by around 22% in the period from May to June.
Still, moves to deepen the cuts raised questions for some about why more cuts were needed.
“It was so sudden and so significant that it just looked like, ‘Is this a proactive policy or just a reaction to weak demand?'” Said Vivek Dhar, mining and energy economist at the Commonwealth Bank.
The cuts, combined with the world’s largest economies that loosen coronavirus restrictions and fuel a gradual recovery in fuel demand, are expected to ease pressure on crude oil storage capacity.
However, following new outbreaks of the coronavirus, including in China and South Korea, the market is wary of a second wave of COVID-19 cases causing new blockages.
Data showing China’s factory prices in April fell to the highest rate in four years also fueled investor concern as they revealed weak industrial demand.
“On the demand side, there is probably an opinion that the worst may be behind us, in terms of the point of maximum damage. If we see a second wave, that would hurt demand and prices,” said Dhar of the Commonwealth Bank. .
This week’s inventory data will be key to spreading the recent rally in oil prices, analysts said.
US crude oil inventories USA They probably rose by about 4.3 million barrels in the week to May 8, a preliminary Reuters poll showed, ahead of reports by the American Petroleum Institute industry group on Tuesday and the US Energy Information Administration. USA On Wednesday. – Reuters
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