Oil up after OPEC looks to deepen, extend supply cuts

Oil prices rose on Tuesday, after OPEC’s de facto leader, Saudi Arabia, said it would increase supply curbs in June, while other members of the oil-producing group said they want to extend the deep cuts reached in April for a longer period than originally agreed.

OPEC and its allies, a group is known as OPEC+, agreed in April to cut output by 9.7 million barrels per day (BPD) for May and June, a record reduction, in response to the 30% drop in fuel demand worldwide caused by the coronavirus pandemic. The group was expected to curtail that reduction to 8 million BPD, but sources told Reuters they instead expect OPEC+ to maintain the larger reduction.

Brent crude LCOc1 advanced 62 cents, or 2.1%, to $30.25 by 12:50 p.m. EDT (1650 GMT) while U.S. West Texas Intermediate (WTI) crude CLc1 was up $1.79, or 7.4%, at $25.93.

On Tuesday, four sources told Reuters that OPEC and its allies want to maintain the 9.7 million BPD cut beyond June when the OPEC+ group is next due to meet.

“They don’t want to reduce the size of the cuts,” one OPEC+ source told Reuters.

Saudi Arabia said on Monday it would add to existing cuts by reducing output another 1 million BPD next month, slashing total production to 7.5 million BPD, down nearly 40% from April.

The United Arab Emirates and Kuwait also committed to slashing an extra 180,000 BPD in total, adding to reductions the producers agreed to under a deal between OPEC and its allies.

Kazakhstan has ordered producers in large and mid-sized oil fields to cut output by about 22% from May to June, in line with the OPEC+ deal.

The U.S. Energy Information Administration said it expects worldwide demand for oil to drop by 8.1 million BPD to 92.6 million BPD, a sharp revision from its previous report. It also cut its expectations for U.S. supply in 2020, now seeing a drop of 540,000 BPD to 11.69 million BPD, and said total world supply would be 95.2 million BPD.

“The EIA’s short-term energy outlook was positive for the market because it lowered the supply forecast, though not by much. It’s still trending lower in 2020 and 2021,” said Bob Yawger, director of futures at Mizuho in New York.

U.S. crude producing states have logged output cuts, as collapsing prices prompted independent and integrated producers to reduce 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 EIA on Wednesday.

Output cuts should ease pressure on crude storage capacity, along with the easing of lockdowns in some countries that have helped lift fuel demand. But new coronavirus outbreaks in China and South Korea have revived concerns of the second wave of infections.