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Oil Prices Rise on Saudi Voluntary Cuts

Oil prices rose on Monday after leading exporter Saudi Arabia said it will reduce output by 1 million barrels per day (bpd) on top of reductions agreed under an OPEC+ pact, though gains were capped by fears of a second wave of coronavirus infections.

Brent crude was up 7 cents, or 0.2%, at $31.04 a barrel by 1242 GMT, while U.S. West Texas Intermediate crude rose 20 cents, or almost 1%, to $24.94. Both contracts had fallen by more than $1 earlier in the session.

Global oil demand has slumped by about 30% as the coronavirus pandemic has curtailed movement across the world, leading to growing inventories globally.

To reduce the oversupply the Organization of the Petroleum Exporting Countries (OPEC) and allied producers – a grouping known as OPEC+ – agreed to cut production from May 1 by about 10 million bpd in an effort to support prices.

On Monday a Saudi energy ministry official said that the ministry has directed national oil company Saudi Aramco to reduce its crude oil production for June by an extra 1 million bpd.

“The recent turmoil in the oil market was triggered by supply and demand developments. The very same factors have seemingly reversed and are now supporting oil prices,” said oil broker PVM’s Tamas Varga.

Oil prices had fallen earlier in the session on signs of a second wave of coronavirus infections after Wuhan, the epicentre of the outbreak in China, reported its first cluster of infections since the city’s lockdown was lifted a month ago.

New coronavirus infections are accelerating in Germany only days after it loosened social restrictions, raising concerns that the pandemic could again slip out of control. South Korea also warned of a second wave of the virus on Sunday.

“Traders stepped back from last week’s enthusiasm, contemplating the possibility of a second wave of the epidemic, which, if realised, could drive demand lower than the market hopes and expects for the second half of 2020,” said Rystad Energy’s head of oil markets, Bjornar Tonhaugen.

Fears that the United States is running out of oil storage space sent WTI prices into negative territory last month, prompting some U.S. producers to rein in output.

The number of operating oil and gas rigs in the world’s largest oil producer fell to 374 in the week to May 8, a record low according to data going back to 1940 from energy services company Baker Hughes Co.

Both benchmarks have notched gains over the past two weeks, supported by a modest rebound in demand as some travel restrictions are eased.

Reporting by Bozorgmehr Sharafedin in London; Additional reporting by Florence Tan in Singapore and Devika Krishna Kumar in New York; Editing by David Goodman