NEW YORK: US oil prices were 4pc higher while the front month Brent crude futures rose above $26 per barrel on Friday, with both benchmarks on track for their first weekly gain in four weeks as OPEC and its allies embark on record output cuts to tackle a supply glut due to the coronavirus crisis.
The global oil benchmark Brent has fallen about 60pc in 2020 and hit a near-21-year low last month as the pandemic squeezed demand and OPEC and other producers pumped at will before reaching the new supply deal that kicked in on Friday. Brent futures for July eased 17 cents, or 0.6pc, to $26.31 by 1:42 p.m. ET (1742 GMT). The June contract expired on Thursday at $25.27.
US West Texas Intermediate crude (WTI) was 82 cents, or 4.4pc higher, at $19.66 after climbing above $20 earlier in the session. After three consecutive weeks of losses, Brent was on track for a gain of more than 20pc while WTI headed for an increase of about 16pc.
WTI also found support after US energy firms cut oil rigs for a seventh week in a row, bringing the total count down to 325, the lowest since June 2016, energy services firm Baker Hughes Co said.
The Organisation of Petroleum Exporting Countries, Russia and other producers, known as OPEC+, have agreed to cut output by 9.7 million barrels per day from May 1. Several countries and regions, including China’s central province of Hubei, where the novel coronavirus behind the pandemic was first detected, are relaxing lockdowns put in place to contain the virus.
“Global petroleum stock builds likely peaked in April as oil demand contracted by nearly 25 million bpd year-over-year,” according to a BofA Global Research report. “Now, countries are emerging from lockdown, boosting demand just when OPEC+ cuts are kicking in and producers elsewhere are cutting output.”
Even so, there are doubts the production reduction, the largest ever agreed, will be enough as demand is unlikely to recover rapidly. “The production cuts are finally kicking in,” said Craig Erlam, analyst at brokerage OANDA. “Prices are still extremely low though and the next two weeks will likely see extreme volatility return.”
A survey on Thursday showed that in advance of the new output cut, OPEC sharply raised production to the highest since March 2019, adding to the excess supply already in the market. “The demand recovery will be a muted affair,” said Stephen Brennock of oil broker PVM. “What’s more, OPEC+ curbs which take effect today will be no panacea for the hefty supply imbalance.”
Underlining the difficulties some producers will face in meeting their commitments, industry sources said Iraq would struggle to meet its quota of cutting output by nearly a quarter. Iraq is OPEC’s second-largest producer.
Also supporting oil prices, the US Energy Information Administration said on Wednesday crude inventories rose by 9 million barrels last week, less than the 10.6 million-barrel rise analysts had forecast. “This is a second straight week of inventory and product demand figures suggesting a bottoming of the US market,” said Stephen Innes, chief market strategist at AxiCorp.
