MELBOURNE/SINGAPORE (Reuters) – Oil futures rose on Tuesday, boosted by an unexpected commitment from Saudi Arabia to deepen production cuts in June in a bid to help drain the glut in the global market that has built up as the coronavirus pandemic crushed fuel demand.
FILE PHOTO: Western Canadian canola fields surrounding an oil pump jack are seen in full bloom before they will be harvested later this summer in rural Alberta, Canada July 23, 2019. REUTERS/Todd Korol
Brent crude futures advanced 0.5%, or 15 cents, to $29.78 at 0500 GMT, after hitting an intraday high of $30.11 a barrel.
U.S. West Texas Intermediate (WTI) crude futures were up 1%, or 26 cents, at $24.40 after touching an intraday high of $24.77.
Saudi Arabia said overnight it would cut production by a further 1 million barrels per day (bpd) in June, slashing its total production to 7.5 million bpd, down nearly 40% from April.
“This reduction in production provided excellent optics encouraging other OPEC+ members to comply and even offer additional voluntary cuts, which should quicken the global oil markets’ rebalancing act,” Stephen Innes, chief global market strategist at AxiCorp, said in a note. OPEC+ is a group comprised of members of the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia.
The United Arab Emirates and Kuwait committed to cut production by another 180,000 bpd in total.
Kazakhstan has also ordered producers in large and mid-sized oil fields including Tengiz and Kashagan to cut oil output by around 22% in the May to June period.
Still, the moves to deepen cuts raised questions for some about why the further cuts were needed.
“It was so sudden and so significant, it was just seen as: ‘Is this a proactive policy or just a reaction to weak demand?’” said Vivek Dhar, Commonwealth Bank’s mining and energy economist.
The cuts, combined with the world’s biggest economies relaxing coronavirus restrictions and stoking a gradual recovery in fuel demand, are expected to ease pressure on crude storage capacity.
However, in the wake of new outbreaks of the coronavirus, including in China and South Korea, the market is wary of a second wave of COVID-19 cases spurring renewed lockdowns.
Data showing China’s April factory prices fell at the sharpest rate in four years also added to investor jitters as it revealed weak industrial demand.
“On the demand side there’s probably a view that the worst may be behind us, in terms of the peak damage point. If we do see a second wave, that would hurt demand and hurt pricing,” said Commonwealth Bank’s Dhar.
Inventory data this week will be key to extending the recent rally in oil prices, analysts said.
U.S. crude inventories likely rose by about 4.3 million barrels in the week to May 8, a preliminary Reuters poll showed, ahead of reports from the American Petroleum Institute industry group on Tuesday and the U.S. Energy Information Administration on Wednesday.
Reporting by Sonali Paul; additional reporting by Seng Li Peng; Editing by Kenneth Maxwell