Oil futures ended lower on Monday, as a slump in demand for crude outweighed support from a move by Saudi Arabia and other major oil producers to further cut output in June.
Saudi Arabia’s energy ministry directed Saudi Aramco to reduce its crude-oil production by an extra, voluntary 1 million barrels per day beginning in June, a Saudi Ministry of Energy official told the Saudi Press Agency, according to news reports .
The move brings the total Saudi output cut to around 4.8 million barrels per day from the April production level, the SPA reported. Saudi oil production for June, with the output-cut agreement between the Organization of the Petroleum Exporting Countries and its allies as well as the voluntary cuts, will total 7.492 million barrels per day, it said.
OPEC and its allies, collectively known as OPEC+, agreed last month to reduce daily output by 9.7 million barrels per day from May 1 through June.
‘If there are no buyers for the barrels, then there is no reason for the market to cheer the cuts.’
Manish Raj, Velandera Energy
“The Saudi announcement of additional cuts failed to excite the market since it appears the production is being cut as a response to lack of market demand,” Manish Raj, chief financial officer at Velandera Energy, told MarketWatch “If there are no buyers for the barrels, then there is no reason for the market to cheer the cuts.”
Meanwhile, Kuwait’s oil minister said Monday that it was offering support for Saudi Arabia’s move to restore balance to the oil market and will voluntarily cut its crude output by an additional 80,000 barrels per day in June, the Kuwait News Agency reported .
The Emirates News Agency said the United Arab Emirates has also committed to an additional cut of 100,000 barrels per day in June.
West Texas Intermediate crude for June delivery /zigman2/quotes/211629951/delayed CL.1 +0.92% on the New York Mercantile Exchange lost 60 cents, or 2.4%, to settle at $24.14 a barrel after touching an intraday low of $23.67. The front-month contract rose 25.1% last week, according to Dow Jones Market Data.
Global benchmark July Brent crude saw a late change to its settlement on ICE Futures Europe on Monday, losing $1.34, or 4.3%, to settle at $29.63 a barrel. Brent last week logged a 17.1% weekly climb.
Additional unilateral cuts by Saudi Arabia, UAE and Kuwait are “not totally surprising,” and could be a reflection of “an expectation of sub-compliance by fellow OPEC+” members and “the continued supply overhang due to risk of a lackluster demand recovery,” said Paola Rodriguez Masiu, senior oil markets analyst at Rystad Energy.
“An extra 1.2 million bpd cut will not rebalance the market, but will surely remove strain from the storage infrastructure and buy time to wait for the demand rebound,” she said in a market update.
Fawad Razaqzada, market analyst at ThinkMarkets, said the lockdown measures tied to COVID-19 “still remain in place in many regions, which implies that demand remains soft for crude,” but “production cuts are going to be supporting prices in the long-term, when demand concerns are no longer a threat.”
Oil production in the U.S., which isn’t part of the OPEC+ pact, has been moving lower, with Energy Information Administration on Wednesday reporting a 200,000 barrel per day decline in total domestic output to 11.9 million barrels for the week ended May 1.
“Investors will be hoping the U.S. continues it’s swift production shutdown to support prices, while concerns over a spike in infections will also weigh heavily on their decision making,” said Mihir Kapadia, chief executive of Sun Global Investments, in a note.
Germany, which loosened restrictions after pushing the number of new daily infections below 1,000, saw regional increases in cases linked to slaughterhouses and nursing homes. China saw 14 new cases Sunday, the first double-digit rise in 10 days, while South Korea saw a rise in cases linked to night clubs.
Oil’s recent bounce has been fueled by optimism over prospects for reopening the U.S. and global economy alongside a sharp drop in production. Crude prices have been slammed this year as the pandemic crushed demand, contributing to a global glut of crude that was exacerbated by a month-long price war between Saudi Arabia and Russia that added to the tide of unneeded crude.
Back on Nymex, prices for petroleum products also ended lower. June gasoline lost 2.9% to 92.42 cents a gallon, while June heating oil fell by 3.4% to 86.87 cents a gallon.
June natural gas settled at $1.826 per million British thermal units, up 0.2%.