Oil cuts by OPEC+, U.S. operators lead prices to a weekly gain

Culled from WorldOil.com

LONDON (Bloomberg) –Oil is headed for its first weekly gain in a month as global production cuts start to lift physical markets and demand shows tentative signs of recovery.

Futures in New York rose as high as $20 a barrel on Friday, before paring gains. U.S. oil companies announced major production closures with Chevron Corp. saying it will shut as much as 400,000 barrels of daily output and Exxon Mobil Corp. reporting it will cut Permian Rigs by 75% by the end of the year. Concho Resources Inc said it’s curtailing about 4-5% of its production.

At the same time, OPEC+’s pledge to trim supply by 9.7 million barrels a day has gone into effect. Algerian Energy Minister Mohamed Arkab, who holds OPEC’s rotating presidency, called on members of the cartel to implement more than 100% of their agreed production cuts.

“We started last month with a focus on demand destruction and now we’re starting this month with a focus on the supply reduction,” said Olivier Jakob, managing director of consultant Petromatrix GmbH.

The price of real crude is reacting to the curbs, with key grades from the Caspian to the North Sea trending higher in recent days. U.S. government data showed gasoline consumption rose by the most in almost a year last week, while rush-hour traffic in some of the biggest cities in China has recovered to pre-virus levels.

Still, oil came off its earlier highs to trade near $19 a barrel on concerns that the industry continues to face a massive supply glut that’s dwarfing early signs of demand recovery.

“There have been some positive developments here,” said Robert Yawger, director of the futures division at Mizuho Securities USA. “You still have a serious oversupply situation and no matter how you twist the EIA report, we are going to be facing a storage capacity situation at Cushing,” he said, referring to the key storage hub in Oklahoma.

Royal Dutch Shell Plc on Thursday forecast that its refineries won’t run at more than 70% of their capacity in the current quarter. Turkey will halt a 238,000 barrels a day plant as a result of the slowdown in demand. Global storage is also close to filling up and Citigroup Inc. warned the worst is likely yet to come for the oil market.

Prices:

  • West Texas Intermediate for June delivery rose 43 cents to $19.27 a barrel as of 10:44 a.m. in New York.
  • Brent for July gained $1.12 to trade at $26.39 a barrel.

Since crude plunged into negative territory last week, investors have been fleeing the nearest futures contracts, increasing volatility. The United States Oil Fund LP, which came under pressure from regulators last month due to the size of its WTI position, said on Friday that it will halve holdings in the July contract. The fund earlier said it may expand investments to include products beyond the benchmark New York crude grade.

Other oil-market news

  • There are very tentative signs emerging from the physical oil market, where cargoes of crude are bought and sold, that we might just have passed the worst of this historic rout.
  • The Federal Reserve revamped its Main Street Lending Program in ways that will allow battered oil companies to qualify for the aid after industry allies lobbied the Trump administration for changes.
  • Oil tanker rates are crashing as a pact to limit global crude production begins. Don’t bet on the rout enduring.

admin

Kabir Ismail is a blogger, website developer/administrator and a comrade.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.