By Peter Nurse
Investing.com - Oil markets pushed higher Tuesday, bolstered by output cuts by some of the world’s largest producers which should help erode the massive oversupply that caused prices to slump.
At 8:55 AM ET (1255 GMT), U.S. crude futures traded 5.4% higher at $25.44 a barrel, while the international benchmark Brent Oil futures rose 2.4% to $30.34.
Saudi Arabia’s decision Monday to voluntarily increase the extent of its production cuts by an additional million barrels a day in June, slashing its total production to 7.5 million bpd, down nearly 40% from April, has boosted confidence that the massive glut that caused prices to turn negative briefly last month could soon be a thing of the past.
Brent prices fell 65% in the first quarter, before OPEC nations and allies, known as OPEC+, agreed to cut supply by a record 9.7 million barrels per day.
"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.
The United Arab Emirates and Kuwait followed suit, while Kazakhstan has also ordered producers to cut oil output by around 22% in the May to June period.
The damage caused by the plunge in oil prices was shown earlier Tuesday by Saudi Arabian state oil giant Aramco (SE:2222) reported a 25% fall in first-quarter net profit.
Still, further oil price gains may well have to be hard won.
The recent price rebound has seen some of the U.S. drillers reopening wells that have recently been shut in, according to pipeline giant Energy Transfer (NYSE:ET).
In the Permian Basin’s Midland region, about 8% of oil volumes that feed Energy Transfer’s pipe network had been shut at the start of the month, Mackie McCrea, the company’s chief commercial officer, said during a conference call on Monday.
“As of today, we’ve seen about 25% of that turned back on,” McCrea said.
There is also the danger that peak oil demand could be one of the legacies of the coronavirus outbreak, BP’s new chief executive Bernard Looney told the Financial Times.
Later Tuesday, the American Petroleum Institute will release its measure of U.S. oil inventories. A report from private consultancy Seevol on Monday suggested that stocks at the U.S. national hub of Cushing, Oklahoma, had fallen by 2.17 million barrels last week, reducing the risk of another bout of negative prices when the June WTI contract expires.