Oil Posts First Weekly Gain in a Month on Signs of Supply Easing
(Bloomberg) -- Crude posted its first weekly gain in a month as global production cuts start to lift physical markets.
Futures in New York rose 17% this week. Oil companies have announced major production closures with Chevron Corp. saying it will shut as much as 400,000 barrels of daily output and Exxon Mobil Corp. reporting it will cut rigs in the Permian Basin by 75% by the end of the year. Concho Resources Inc. said it’s curtailing about 4-5% of its production.
At the same time, OPEC+’s pledge to trim supply by 9.7 million barrels a day has gone into effect. Algerian Energy Minister Mohamed Arkab, who holds OPEC’s rotating presidency, called on members of the cartel to implement more than 100% of their agreed production cuts.
The market has rebounded on factors including “the expectation that the OPEC+ production cuts were going to start ramping up, that we continue to see signs that oil producers are going to be cutting their drilling activity, that we are going to see supplies tighten in the coming months,” said Gene McGillian, manager for market research at Tradition Energy.
The price of real crude is reacting to the curbs, with key grades from the Caspian to the North Sea trending higher in recent days. Globally, the number of rigs drilling for oil and gas tumbled almost 20 percent in April, and in the U.S., the oil rig count dropped by 53 to 325, a seventh straight week of declines.
Still, crude came off highs during the session on lingering concerns over a glut of oil and lack of places to store it.
“We are going to be facing a storage capacity situation at Cushing,” said Robert Yawger, director of the futures division at Mizuho Securities USA, referring to the key U.S. hub in Oklahoma.
Since crude plunged into negative territory last week, investors have been fleeing the nearest futures contracts, increasing volatility. The United States Oil Fund LP, which came under pressure from regulators last month due to the size of its WTI position, said on Friday that it will halve holdings in the July contract. The fund said it may expand investments to include products beyond the benchmark New York crude grade.
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