Oil Market Showing Signs of Life as Producers Plan Output Cuts
(Bloomberg) -- Oil-output cuts across the U.S. have stemmed the freefall in prices. But whether the recent recovery is sustained will depend partly on whether producers make good on their commitments.
Exxon Mobil Corp., Chevron Corp. and ConocoPhillips expect to pump more than 500,000 barrels a day below planned levels by the end of the second quarter. Concho Resources Inc., one of the Permian Basin’s largest producers, plans on keeping its production intact this year although it had already begun cutbacks this month. North Dakota output has already fallen by more than 400,000 barrels a day, according to the state.
The production cuts that are slowly reining in the surplus have started to buoy prices in both futures and physical oil markets. Nymex crude futures for June have gained almost $8 a barrel since April 21, while West Texas Intermediate crude in Midland, Texas, is trading at $3.35 a barrel above futures, up from an $8.50 discount in late March.
“All producers will have to follow through with planned production cuts” if the price recovery is to sustain, said Elisabeth Murphy, an analyst at consultant ESAI Energy. Across the U.S., shut-ins are expected to cause output by June to be nearly 2 million barrels a day lower than January, Murphy said.
The other key the recovery will be how fast demand starts to improve.
“Supplies have started to decline quickly with signs of demand improving even ahead of lockdown measures being eased,” Goldman Sachs Group Inc. analysts including Damien Courvalin wrote in a report.
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