MELBOURNE (Reuters) – Oil futures climbed in early trade on Tuesday, boosted by an unexpected commitment from Saudi Arabia to deepen production cuts in June to help drain the glut in the global market that has grown as the coronavirus pandemic crushed fuel demand.
FILE PHOTO: Western Canadian canola fields surrounding an oil pump jack are seen in full bloom before they will be harvested later this summer in rural Alberta, Canada July 23, 2019. REUTERS/Todd Korol
Brent crude futures climbed to a high of $30.11 a barrel and were up 0.9%, or 28 cents, at $29.91 at 0021 GMT, clawing back some of the previous session’s losses. The benchmark fell $1.34 on Monday.
U.S. West Texas Intermediate (WTI) crude futures were up 1%, or 24 cents, at $24.38 after touching a high of $24.77.
Saudi Arabia said overnight it would cut production by a further 1 million barrels per day (bpd) in June, slashing its total production to 7.5 million bpd, down nearly 40% from April.
“This reduction in production provided excellent optics encouraging other OPEC+ members to comply and even offer additional voluntary cuts, which should quicken the global oil markets’ rebalancing act,” Stephen Innes, chief global market strategist at AxiCorp, said in a note. OPEC+ is a grouping comprising members of the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia.
The United Arab Emirates and Kuwait also committed to cut production further, promising to cut another 180,000 bpd altogether.
Those cuts, combined with the world’s biggest economies relaxing coronavirus restrictions and stoking a gradual recovery in fuel demand, are expected to ease some pressure on crude storage capacity.
However, in the wake of new outbreaks of the coronavirus, including in China and South Korea, the market is wary of a second wave of COVID-19 cases that could result in new lockdowns and stall a recovery in demand.
Inventory data this week will be key to extending the recent rally in oil prices, AxiCorp’s Innes said.
“The majority of traders’ top-line view is that inventories will increase at a slower pace but will still build, capping oil prices in the medium term,” he said.
U.S. crude inventories likely rose by about 4.3 million barrels in the week to May 8, a preliminary Reuters poll showed, ahead of reports from the American Petroleum Institute industry group on Tuesday and the U.S. Energy Information Administration on Wednesday.
Meanwhile six analysts polled estimated that gasoline stockpiles fell by 2.3 million barrels, down for a third straight week.
Reporting by Sonali Paul; Editing by Kenneth Maxwell