​Oil boosted by demand rise and deeper Saudi Arabian output cuts

Oil rose as demand continued to show signs of recovery and Saudi Arabia pledged to unilaterally deepen its production cuts.

Futures gained 5.1 per cent in New York with equity markets also turning higher. Pockets of demand are starting to emerge in India and China, and while a huge glut remains, the increase in global stockpiles is slowing. Saudi Arabia’s move on Monday to reduce output by more than required under the OPEC+ deal was followed by smaller reductions from allies the United Arab Emirates and Kuwait.

Oil is still down about 60 per cent this year with little clarity about when, and if, global consumption will return to pre-virus levels. There’s been a steady recovery in air and road travel in China’s biggest cities, but in Europe various degrees of lockdown continue to hobble consumption. In the U.S., fuel sales at gas stations rose during the week to May 2, but are still far below 2019 levels. The threat of a resurgence of the virus remains high.

“The road to an oil price recovery will likely be choppy and plagued with stop-and-go rallies and selling cycles until some level of price certainty is restored,” said Roger Diwan, vice-president of financial services at IHS Markit.

Prices
  • West Texas Intermediate for June delivery gained $1.22 to $25.36 a barrel as of 8:36 a.m. New York time
  • Brent for July settlement added 63 cents, or 2.1 per cent, to $30.26
  • The global benchmark’s nearest timespread narrowed by as much as 27 cents to -75 cents, a sign of a strengthening market

Indian fuel consumption this month is expected to be as much as 25 per cent higher than April as trucks and other traffic return to the road with restrictions easing, according to officials at two state-owned refineries. In China, more people are driving to avoid public transport due to virus fears, boosting gasoline demand.

Prices have also got a boost this month with the Organization of Petroleum Exporting Countries and its allies starting their record production cuts. Saudi Arabia is going further as it urgently tries to stabilize the market as rock-bottom prices have forced it to impose deep spending cuts.

The kingdom aims to pump just under 7.5 million barrels a day in June, compared with an official target of about 8.5 million a day. Kuwait and the U.A.E. also plan additional daily curbs of 80,000 barrels and 100,000, respectively.

© 2020 Bloomberg L.P.

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