Oil prices rose on Tuesday, boosted by an unexpected commitment from Saudi Arabia to deepen production cuts in June to help drain a supply glut built up during the coronavirus crisis.
Brent crude advanced 85 cents, or 2.9%, to $30.48 at 1100 GMT, while U.S. West Texas Intermediate (WTI) crude futures were up $1.29, or 5.3%, at $25.43.
Saudi Arabia said on Monday it would cut output by a further 1 million barrels per day (bpd) in June, slashing total production to 7.5 million bpd, or down nearly 40% from April.
The United Arab Emirates and Kuwait also committed to cut an extra 180,000 bpd in total, adding to reductions the producers agreed under a deal between OPEC, Russia and other nations, a group known as OPEC+.
But both benchmark crudes still fell on Monday despite those announcements, amid fears output cuts are still not enough to balance a market where demand has been hammered by the coronavirus and where consumption could be hit again by a second wave of infections.
“The market is obviously far from certain that the additional cuts announced yesterday will be able to drive the oil price materially higher. But, today, the conclusion is that yes, the additional cuts are naturally positive on the margin,” said Bjarne Schieldrop, chief commodities analyst with SEB Bank.
Kazakhstan has ordered producers in large and mid-sized oil fields to cut output by about 22% in May to June, in line with the OPEC+ deal.
Output cuts, along with the easing of lockdowns in some countries that has helped lift fuel demand, are expected to ease pressure on crude storage capacity. But renewed coronavirus outbreaks in China and South Korea have revived concerns.
Data showing China’s April factory prices fell at the sharpest rate in four years added to investor jitters, revealing weak industrial demand.
“Producers are doing everything in their power to balance the oil market but their efforts were hindered yesterday by growing concerns about the coronavirus,” said oil broker PVM’s Tamas Varga.
“Although more countries are easing restrictions the dreaded second wave of virus infections are darkening the mood on the demand side of the equation.”
Inventory data this week will be key to extending any oil price rally.
U.S. crude inventories likely rose by about 4.3 million barrels in the week to May 8, a preliminary Reuters poll showed, before reports from the American Petroleum Institute industry group on Tuesday and the U.S. Energy Information Administration on Wednesday.