Oil prices rose on Tuesday, boosted by an unexpected commitment from Saudi Arabia to deepen production cuts in June to help drain a supply glut built up during the coronavirus crisis.
Saudi Arabia said on Monday it would cut output by a further 1 million barrels per day (bpd) in June, slashing total production to 7.5 million bpd, or down nearly 40% from April.
The United Arab Emirates and Kuwait also committed to cut an extra 180,000 bpd in total, adding to reductions the producers agreed under a deal between OPEC, Russia and other nations, a group known as OPEC+.
But both benchmark crudes still fell on Monday, despite those announcements, amid fears output cuts are still not enough to balance a market where demand has been hammered by the coronavirus and where consumption could be hit again by a second wave of infections.
“The market is obviously far from certain that the additional cuts announced yesterday will be able to drive the oil price materially higher. But, today, the conclusion is that yes, the additional cuts are naturally positive on the margin,” said Bjarne Schieldrop, chief commodities analyst with SEB Bank.
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.
Output cuts, along with the easing of lockdowns in some countries that has helped lift fuel demand, are expected to ease pressure on crude storage capacity. But renewed 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, revealing 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,” Commonwealth Bank’s Vivek Dhar said.