Energy

Oil jumps more than 3% as faith in supply cuts grows

Oil-storage tanks are seen from above in Carson, California, April 25, 2020 after the price for crude plunged into negative territory for the first time in history on April 20.
Robyn Beck | AFP | Getty Images

Oil prices rose on Tuesday, supported by growing confidence that producers are following through on commitments to cut supplies and as fuel demand picks up with coronavirus restrictions easing.

Brent crude futures gained 64 cents, or 1.8%, to settle at $36.17 per barrel. West Texas Intermediate crude futures gained $1.10, or 3.3%, to settle at $34.35 per barrel.

The Organization of the Petroleum Exporting Countries and other leading oil producers including Russia, a group known as OPEC+, agreed last month to cut their combined output by almost 10 million barrels per day in May-June to shore up prices and demand, which has been hit by the coronavirus pandemic.

Russian Energy Minister Alexander Novak is due to meet oil major producers on Tuesday to discuss the possible extension of the current level of cuts beyond June, sources familiar with the plans told Reuters.

The RIA news agency said Russian oil production volumes were near the country's target of 8.5 million bpd for May and June.

On Monday, Russia's energy ministry quoted Novak as saying that a rise in fuel demand should help to cut a global surplus of about 7 million to 12 million bpd by June or July.

OPEC+ countries are due to meet again in early June to discuss maintaining their supply cuts to shore up prices, which are still down about 45% since the start of the year.

"The 16 million bpd oversupply in crude during April could be reversed altogether by June, helped by a 4 million-bpd recovery in crude demand and a 12 million-bpd cut in crude supply," said Bjornar Tonhaugen, head of oil markets for Rystad Energy.

"OPEC+ is pulling the most weight by far, effectively reducing supply by nearly 9 million bpd while non-OPEC+ crude supply is down by more than 3.5 million bpd from March levels."

In an indication of lower supply in the future, data from energy services business Baker Hughes showed that the U.S. rig count hit a record low of 318 last week.