Adedapo Adesanya
By Adedapo Adesanya
Oil prices continued pointing up for both benchmarks on Friday, May 1 as oil producers embark on record output cuts to tackle glut due to the coronavirus crisis.
This led to the first weekly gain for the market in four weeks.
The international benchmark, Brent crude, was up by 0.64 percent or 17 cents to $26.65 per barrel, while the American West Texas Intermediate (WTI) went up by 85 cents or 4.51 percent to sell at $19.69 per barrel.
Friday marked the first effective day of the output ceiling deal signed by members of the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers, known as OPEC+. Early last month, they agreed to reduce supply by 9.7 million barrels per day.
The 23-country OPEC+ coalition agreed to cut the output by 9.7 million barrels per day for two months from an agreed baseline level starting May 1. These countries will also cut 7.7 million b/d between July and December and 5.8 million b/d from January 2021 to April 2022.
Business Post had reported that Saudi Arabia and Kuwait had already commenced cutting back production before Friday.
Norway also recently announced that it would cut oil production by 250,000 barrels per day in June – equating to 13 percent cut. Then after June, Norway is planning on easing those cuts to 138,000 barrels per day, for the remainder of the year.
Although, due to the COVID-19 pandemic, oil demand will fall as much as 9.3 million barrels daily in 2020, there could be a swifter recovery if lockdowns ease quickly, as some countries have reopened their economies.
It has been projected that a reduced lockdown period and a strong economic recovery in the second half of 2020 could limit the annual decline in oil demand to 6.5 million barrels per day or 6 percent from 2019 levels or 30 percent below its central forecast of 9.3 million barrels per day for the year.
Countries like Spain, France, Austria and Switzerland among others have already removed COVID-19 restrictions and that’s going to see demand pick up, hence, the market swinging towards the positive.
A lower-than-expected gain in US crude inventories was the other significant support factor on Friday for the futures.
Data from the US Energy Information Administration (EIA) showed crude inventories rose by 9 million barrels last week to 527.6 million barrels, less than the 10.6 million-barrel rise analysts had forecast.
