Oil prices up after Saudi pledge to deepen production cuts

LONDON • Oil prices rose yesterday, 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 pandemic.

Brent crude advanced 78 cents, or 2.6 per cent, to US$30.41 at 1216 GMT, while US West Texas Intermediate (WTI) crude was up US$1.22, or 5 per cent, at US$25.36.

Saudi Arabia on Monday said it would add to existing cuts by a further one million barrels per day (bpd) next month, slashing total production to 7.5 million bpd, or down nearly 40 per cent from last month.

The United Arab Emirates and Kuwait also committed to cutting an extra 180,000 bpd, adding to reductions the producers agreed under a deal between the Organisation of Petroleum Exporting Countries (Opec), Russia and other countries - a group known as Opec+.

Both crude benchmarks had still fallen on Monday despite those announcements, amid fears that output cuts were not enough to balance a market, where demand has been hammered by the pandemic 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 SEB chief commodities analyst Bjarne Schieldrop.

Kazakhstan has ordered producers in large and mid-sized oil fields to cut output by about 22 per cent from May to June, in line with the Opec+ deal.

"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 analyst Tamas Varga. "The dreaded second wave of infections is darkening the mood on the demand side of the equation."

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