Oil prices have increased as Saudi Arabia pledged to further deepen output cuts next month to help drain a global fuel glut caused as a result of the coronavirus (Covid-19) pandemic.
Brent crude futures increased $0.15 to $29.78 a barrel, while US West Texas Intermediate (WTI) crude futures increased by $0.26 at $24.40 per barrel, reported Reuters.
Saudi Arabia announced plans cut production by a further one million barrels per day (bpd) next month. This would slash its total production to 7.5 million bpd, which was down nearly 40% compared to last month.
AxiCorp chief global market strategist Stephen Innes was quoted by the news agency as saying: “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.”
Meanwhile, the UAE and Kuwait pledged to cut output by another 180,000bpd in total.
Kazakhstan has also ordered Tengiz and Kashagan oil field producers, and other producers in the large and mid-sized oil fields, to cut oil output by around 22% this month and next month.
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Commonwealth Bank mining and energy economist Vivek Dhar said: “It was so sudden and so significant, it was just seen as: ‘Is this a proactive policy or just a reaction to weak demand?’”
The cuts, alongside partial easing of lockdown restrictions globally, are expected to ease a critical shortage of oil storage capacity.
However, in wake of new infected cases rising in China and South Korea, the market is concerned about a second wave of coronavirus cases which would result in introducing renewed restrictions.
Dhar added: “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.”
Reuters reported analysts as saying that the inventory data this week will play a major role in extending the recent rally in prices.
Data from the preliminary Reuters poll highlighted a rise in the US crude inventories by about 4.3 million barrels in the week that ended on 8 May.