Oil Edges Higher as Saudi Cuts Supply



Oil Edges Higher as Saudi Cuts Supply
Oil edged higher as investors weighed cuts to supply by Saudi Arabia against lingering concerns over the pace of recovery from virus-led demand destruction.

(Bloomberg) -- Oil edged higher as investors weighed cuts to supply by Saudi Arabia against lingering concerns over the pace of recovery from virus-led demand destruction.

Futures in New York added 2.6% after falling on Wednesday. Saudi Aramco cut sales to the U.S. and Europe by about half and reduced supplies to at least 12 customers in Asia for June as OPEC and its allies curb daily output by almost 10 million barrels. While there are early signs of a recovery in the American energy sector, the Federal Reserve said the threat of a lasting downturn could deepen without additional government spending.

OPEC also presented a bleak assessment of global oil markets for the second quarter, even as pockets of demand emerge in China and India, and Goldman Sachs Group Inc. sees rising gasoline consumption.

Oil has swung between gains and losses this week as the market grapples with a nascent recovery in demand and concerns a resurgence of coronavirus cases could derail an economic rebound. While Saudi Arabia and Russia see signs of consumption improving, OPEC cut its estimate for the amount of crude it will need to supply in the second quarter by about 15% due to the virus impact.

Aramco will decrease shipments to some buyers in the U.S. and Europe by as much as 60% or 70%, according to a person familiar with the situation. Eight of the 12 Asian refiners that had their term supplies cut said the reductions were substantial, with curtailments of 20-30% or more.

“While we are seeing a gradual recovery in demand and supply cuts finally hitting the market, at the end of the day, we are still in a surplus environment,” said Warren Patterson, head of commodities strategy at ING Bank NV in Singapore. “The market has moved considerably higher since late April, and I think that strength is just not sustainable in the near term.”

Prices

  • West Texas Intermediate for June delivery gained 66 cents to $25.95 a barrel on the New York Mercantile Exchange as of 8:20 a.m. London time after falling 1.9% on Wednesday
  • Brent for July settlement rose 2.5% to $29.92 after declining 2.6% in the previous session
  • Crude futures lost 2.4% to 245.3 yuan a barrel on the Shanghai International Exchange

Crude stockpiles at Cushing, Oklahoma, the delivery-point for WTI, fell by 3 million barrels last week, the Energy Information Administration reported on Wednesday. Nationwide inventories dropped by 745,000 barrels, compared with a forecast increase of 4 million barrels in a Bloomberg survey. However, refinery crude input was at the lowest level since 2008.

Russia is nearing its target for output cuts under the OPEC+ deal agreed last month, but producers there face a challenge in reining in their activity without permanently damaging their fields.

--With assistance from James Thornhill.

To contact the reporter on this story:
Saket Sundria in Singapore at ssundria@bloomberg.net

To contact the editors responsible for this story:
Serene Cheong at scheong20@bloomberg.net
Ben Sharples, Andrew Janes



WHAT DO YOU THINK?


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.