Oil rises above US$30 for first time in two months on output cuts

Crude oil storage tanks are seen at the oil hub in Cushing, Oklahoma, on April 21, 2020. PHOTO: REUTERS

SYDNEY (BLOOMBERG) - Oil rose above US$30 a barrel for the first time in two months on Monday (May 18) as producers in the US and elsewhere continued to cut activity, helping to rebalance a market that was thrown into disarray by coronavirus lockdowns.

Futures in New York climbed around 4 per cent after almost doubling in a run of three weekly advances. The number of drilling rigs in the US fell for a ninth week to levels not seen in more than a decade, while stockpiles at the key storage hub in Cushing, Oklahoma, shrank for the first time since late February. Iraq said it planned to halt output from one of its oil fields due to protests.

WTI for June delivery rose 4.4 per cent to US$30.72 a barrel on the New York Mercantile Exchange as of 8:16am in Singapore after climbing 19 per cent last week. Brent for July settlement added 3.6 per cent to US$33.67 following a 4.9 per cent advance last week.

The American cuts come on top of almost 10 million barrels a day of curbs from the Opec+ alliance, which kicked in at the beginning of May. Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, said in a Bloomberg Television interview that the outlook for the second half was looking more encouraging as the global economy recovers.

Opec+ is responding to the oil market's collapse with an urgency never seen before. The group's production cutbacks are well on their way to their goal of removing around 10 per cent of global supplies, according to tanker-tracking data, interviews with physical crude traders and refiners, and assessments by consultants. Together with a tentative recovery in demand, that's made a repeat of last month's plunge below zero extremely unlikely before the expiration of the West Texas Intermediate June contract on Tuesday.

However, there's still a risk that oil's recovery could be derailed if the pandemic worsens and leads to restrictions being reimposed. Federal Reserve Chairman Jerome Powell warned Friday that stocks and other assets that have rallied sharply in the past month would suffer "significant declines" if there were setbacks in the fight to contain the virus.

Iraq, Opec's second-biggest producer, said it planned to halt output from the southeastern oil field of Al-Ahdab due to protests that are blocking operations, according to a person with knowledge of the situation. The protesters are demanding the resignation of the governor of Wasit Province, where the field is located, along with his two deputies, said the person, who asked not to be identified because the information isn't public.

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