Oil prices rose overnight after OPEC’s de facto leader, Saudi Arabia, said it would increase supply curbs in June, while other members of the oil-producing group said they want to extend the deep cuts reached in April for a longer period than originally agreed.
OPEC and its allies, a group known as OPEC+, decided in April to cut output by 9.7 million barrels per day (bpd) for May and June, a record reduction, in response to the 30 per cent drop in fuel demand worldwide caused by the coronavirus pandemic. The group was expected to curtail that reduction to 8 million bpd, but sources told Reuters they instead expect OPEC+ to maintain the larger reduction.
US West Texas Intermediate (WTI) crude futures settled at $US25.78 a barrel, up $US1.64, or 6.8 per cent. Brent crude futures settled at $US29.98 a barrel, gaining 35 cents, or 1.2 per cent.
On Tuesday, four sources told Reuters that OPEC and its allies want to maintain the 9.7 million bpd cut beyond June, when the OPEC+ group is next due to meet.
“They don’t want to reduce the size of the cuts,” one OPEC+ source told Reuters.
Saudi Arabia said on Monday it would add to existing cuts by reducing output another 1 million bpd next month, slashing total production to 7.5 million bpd, down nearly 40 per cent from April.
The United Arab Emirates and Kuwait also committed to slashing an extra 180,000 bpd in total, adding to reductions the producers agreed to under a deal between OPEC and its allies.
“The idea that the Saudis and Kuwaitis and the UAE said that they’re going to enact deeper cuts than they initially agreed upon is helping the market find support,” said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.
Kazakhstan has ordered producers in large and mid-sized oil fields to cut output by about 22 per cent in May to June, while output from Russia’s top oil region in western Siberia is expected to fall by 15 per cent this year, in line with the OPEC+ deal.
The US Energy Information Administration said it expects worldwide demand for oil to drop by 8.1 million bpd to 92.6 million bpd, a sharp revision from its previous report. It also cut its expectations for US supply in 2020, now seeing a drop of 540,000 bpd to 11.69 million bpd, and said total world supply would be 95.2 million bpd.
US crude producing states have logged output cuts, as collapsing prices prompted independent and integrated producers to reduce operations. US crude futures have lost roughly 60 per cent so far this year.
US crude oil inventories rose last week while gasoline stocks fell, data from industry group the American Petroleum Institute showed.
Crude inventories rose by 7.6 million barrels to 526.2 million barrels, API said, a build that exceeded analysts’ expectations for 4.1 million barrels. Gasoline stocks fell by 1.9 million barrels, a draw that was shy of the 2.2 million barrels analysts had predicted.
US Energy Information Administration storage data is due on Wednesday.