What’s happening: US crude oil futures surged to a five-week high on Tuesday, as sentiment was lifted by declining production and some rebound in demand.
What happened: With various economies around the world beginning to ease lockdown restrictions imposed to curb the COVID-19 pandemic, demand for crude oil is gradually reviving.
The OPEC+ (Organization of Petroleum Exporting Countries and its allies) had agreed in April to cumulatively reduce oil production by 9.7 million barrels per day from May through June, making this the biggest output cut in its history. OPEC's de-facto leader, Saudi Arabia, announced plans on Tuesday to lower its crude oil production by an additional 1 million barrels per day in June.
Market sentiment was also lifted by speculations of the agreed production cuts to extend beyond June.
Why it matters: Saudi Arabia has directed its national oil company Aramco to make additional output cuts in June, taking production to 7.492 million barrels of oil per day.
Other members including, Kuwait and the UAE, supported Saudi Arabia’s move and announced plans to cut production by 80,000 and 100,000 barrels a day, respectively, from June.
The OPEC+ group had agreed last month to lower production in a bid to stabilise oil prices and the commodity market. The group had intended to return to normal production post June, but with economies making a slower recovery than anticipated, the member countries could continue at the lower production level even after next month.
WTI (West Texas Intermediate) crude for June delivery gained 6.8% to settle at $25.78 per barrel on the NYMEX (New York Mercantile Exchange). Global benchmark Brent crude for July gained 1.2% to reach $29.98 a barrel.
The US EIA (Energy Information Administration) reduced its outlook for domestic oil output to 11.7 million barrels per day for 2020, down 500,0s00 barrels per day versus 2019.
Although the API (American Petroleum Institute) announced late Tuesday that US crude stockpiles had risen by 7.6 million barrels in the week ended May 8, China’s crude inventories have declined in the latest weeks after surging to record highs.
June natural gas fell 5.8% to $1.72 per million British thermal units, ahead of the EIA’s next report on Thursday. June gasoline declined by 0.6% to settle at 91.85 cents a gallon.
What to watch: Oil traders will be keeping a close eye on any signs of a recovery in economic activity across the globe, which will push demand higher for the commodity. Markets also await EIA’s weekly report on US crude inventories, which is expected to rise 4.8 million barrels in the week ended May 8. Gasoline supplies are projected to fall 2.5 million barrels, while distillates are likely to have risen by 4.1 million barrels last week.