By Peter Nurse
Investing.com - Oil prices spiked by over a dollar on Monday on news that Saudi Arabia has announced that it will cut its output by another one million barrels a day, eating into the massive oversupply that caused prices to slump.
At 8:10 AM ET (1210 GMT), U.S. crude futures traded 1.5% higher at $25.12 a barrel, while the international benchmark Brent contract rose 0.9% to $31.24. Before the announcement, WTI had traded at just under $24 a barrel.
A Saudi Arabian energy official said Monday that his ministry has directed national oil company Aramco (SE:2222) to reduce its crude oil production for June by an extra one million barrels per day, on top of the reduction already committed by the kingdom under the OPEC+ cut deal.
"This brings the total production cut that will be carried out by the Kingdom, to around 4.8 million barrels per day, from the April production level,'' he said.
''Therefore, the kingdom’s production for June, after both its targeted and voluntary cuts, will be 7.492 million barrels per day," he added.
The Organization of Petroleum Exporting Countries and its allies, a group commonly known as OPEC+, agreed in mid-April to cut their production by 9.7 million barrels a day in an attempt to reduce the glut that had caused prices to crash. Saudi Arabia in particular had ramped up output to over 12 million b/d just as world oil demand was collapsing due to the pandemic
Both the world's major market benchmarks have notched up gains over the past two weeks, helped by this reduction in output and also by the easing of lockdowns imposed to cope with the coronavirus, which has helped a modest rebound in fuel demand.
Crude inventories in China, the globe’s biggest importer, have shrunk in recent weeks after rising to record levels, and is an early sign that rebalancing may have begun in the global oil market, according to Morgan Stanley.
This comes after the latest data from the Energy Information Administration showed the slowest weekly build since mid-March as domestic output fell further, while crude oil inventory at Cushing, Oklahoma saw the smallest build since late March.
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. If verified by the government on Wednesday, that would represent the first drawdown of inventories since March.
However, near-term pressures on prices remain. India's refined oil products demand plunged to a 12-year low in April, down 45.8% year-on-year to 9.93 million tons, that’s around 2.5 million barrels a day. India is the world's third largest oil consumer, after the U.S. and China.