NEW YORK: Oil prices rose on Tuesday after an unexpected commitment from Saudi Arabia to deepen production cuts in June and on indications that the producer group known as OPEC+ wants to maintain existing curbs for longer than expected.
Brent crude advanced 44 cents, or 1.5%, to $30.07 by 11:17 a.m. EDT (1517 GMT), while U.S. West Texas Intermediate (WTI) crude was up $1.40, or 5.8%, at $25.54.
Saudi Arabia said on Monday it would add to existing cuts by reducing output another 1 million barrels per day (bpd) next month, slashing total production to 7.5 million bpd, or down nearly 40% from April.
Four sources told Reuters on Tuesday that OPEC and its allies want to maintain existing oil cuts beyond June, when the OPEC+ group is next due to meet to shore up prices and demand.
OPEC+ agreed in April to cut output by 9.7 million bpd for May and June, a record reduction. While producers will slowly relax curbs after June, supply reductions will remain to April 2022.
“The ministers want to keep the same oil production cuts now, which are about 10 million bpd, after June,” one OPEC+ source told Reuters. “They don’t want to reduce the size of the cuts.”
The United Arab Emirates and Kuwait also committed to slash an extra 180,000 bpd in total, adding to reductions the producers agreed to under a deal between OPEC, Russia and other nations, a group known as OPEC+.
Kazakhstan has ordered producers in large and mid-sized oil fields to cut output by about 22% in May to June, in line with the OPEC+ deal.
“Prices have recently been boosted not only by hopes that demand will soon return, but also by massive voluntary and involuntary production cuts,” Commerzbank said in a note.
“The coordinated action by the Gulf states, with a total production capacity of around 20 million barrels per day, is likely to increase confidence among market participants.”
U.S. crude producing states have also logged a decline in output cuts, as collapsing prices prompted independent and integrated producers to cut operations. U.S. crude futures have lost roughly 60% so far this year.
U.S. crude inventory reports from the American Petroleum Institute industry group are due on Tuesday and the U.S. Energy Information Administration on Wednesday.
Output cuts should ease pressure on crude storage capacity, along with the easing of lockdowns in some countries that has helped lift fuel demand. But new coronavirus outbreaks in China and South Korea have revived concerns.
Data showing China’s April factory prices fell at the sharpest rate in four years added to investor jitters.
President Donald Trump praised Saudi Arabia’s decision to curb its oil output.
