Crude prices reversed early trading losses and finally advanced on Monday as Saudi Arabia ordered its state oil giant to slash production by 1 million barrels per day in addition to cuts agreed to by the OPEC+ deal.
Futures for US oil rose over one percent, with West Texas Intermediate (WTI) for June delivery trading above $25 a barrel after losing three and a half percent in earlier action. Global benchmark Brent jumped 0.4 percent to more than $31 per barrel amid choppy trading, before erasing most of the gains.
The moves in the oil market come as Saudi Arabia, which was hit hard by low prices for the commodity, said it would further slash production in June. The “voluntary cuts,” announced by the kingdom’s Ministry of Energy, will wipe out an extra 1 million barrels per day (bdp) from the market. The new caps bring total Saudi production to around 4.8 million bpd from April’s production level.
Riyadh hopes the decision will encourage other members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies to stick to their commitments under the massive oil accord signed in April that came into force this month. It also hopes that other major oil producers will join it in deepening oil cuts.
Crude prices have been on a wild ride this year as the coronavirus pandemic cut global demand for the commodity by around one-third according to some estimates. The dramatic drop in demand came at a bad time for the already oversupplied market, as the previous OPEC+ agreement fell apart due to a disagreement between Russia and Saudi Arabia.
Despite the oil majors signing a new deal, the already existing supply glut triggered fears that the world is running out of space to store crude. This sent prices for US oil into negative territory for the first time in history.
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