Oil advanced as the combination of an uptick in demand and Saudi Arabia’s pledged production cuts spurred optimism over a market recovery.
Futures in New York gained as much as 6.8% on Tuesday and are set to close at the highest level in five weeks. Pockets of demand are starting to emerge in India and China and, while a huge glut remains, the increase in global stockpiles is slowing. Saudi Arabia plans to cut production by an additional 1 million barrels a day, easing concerns over storage capacity hitting limits worldwide.
“You definitely have some gasoline demand returning,” said Robert Yawger, director of the futures division at Mizuho Securities USA. “We’re moving in the right direction.”
Saudi Arabia’s move to reduce output by more than required under the OPEC+ deal was followed by pledges from the United Arab Emirates and Kuwait. The decision prompted U.S. President Donald Trump to tweet that the production cuts are raising oil prices and that “Our great Energy Companies, with millions of JOBS, are starting to look very good again.”
Still, oil is down about 60% this year with little clarity about when, and if, global consumption will fully return. Consultancy IHS Markit doesn’t see oil recovering to pre-virus levels until the second half of 2021.
“The road to an oil price recovery will likely be choppy and plagued with stop-and-go rallies and selling cycles until some level of price certainty is restored,” said Roger Diwan, vice president of financial services at IHS Markit.
Saudi Arabia aims to pump just under 7.5 million barrels a day in June, compared with an official target of about 8.5 million a day. Kuwait and the U.A.E. also plan additional daily curbs of 80,000 barrels and 100,000, respectively.
