Oil prices rose on Tuesday after a US Energy information administration (EIA) said shale output in the world’s biggest crude producer would fall by the most on record in April, adding to cuts from other major producers. Brent futures rose 56 cents, or 1.8% to $32.30 a barrel on Tuesday morning after settling 0.8% higher on Monday while the US West Texas Intermediate (WTI) crude was up 47 cents, or 2.1% at $22.88, having dropped 1.5% at the previous session. Crude prices have lost some gains this afternoon while Brent crude benchmark was trading by 0.5% lower than Monday closing and WTI futures loses 1.6%.
The Organization of the Petroleum Exporting Countries, OPEC, along with Russia and other producing countries known as OPEC+ agreed over Easter to cut output by 9.7 million barrels per day (bpd) in May and June, equal to about 10% of global supply before the viral outbreak. With other producers, including the world’s biggest, the United States, reducing output as well, the estimated reduction in production is about 19.5 million bpd. Oil industry executives, analysts say no matter how the numbers are messaged the reduction will not be enough to match a contraction of around a third of global oil demand due to the outbreak. Oil prices are still down by over 50% so far since the beginning of this year.
“OPEC+ cut volumes are too small to counter the peak impact coming from the demand side,” JBC Energy said in a note. Inventories are expected to fill up fast even as some countries among the G20 agreed to buy oil for their national reserves.
US production is falling in tandem with a drop in prices and there are signs the coronavirus outbreak may have peaked in some areas of the world. US shale oil output is expected to have the biggest monthly drop on record during April, the US Energy Information Administration (IEA) said on Monday. Production has been sliding for several months, but the declines are expected to accelerate sharply in April with a loss of nearly 200,000 bpd of production, the IEA said. That would bring shale oil output, which has been the driver of the sharp growth in US production, to 8.7 million bpd. Numerous US producers, including majors like Exxon Mobil and Chevron, have said they will cut spending and expect to produce less crude in the coming months.
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