Oil Futures Find Support

WASHINGTON (DTN) -- After a choppy start Monday, oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled the session mostly higher, drawing support from comments by Saudi Energy Minister Prince Abdulaziz and U.S. President Donald Trump that the global production deal would net as much as much 20 million barrels per day (bpd) in cuts despite some remaining ambiguity over their implementation.

Markets appear to be cautious over growing reassurances from Riyadh, Washington D.C., and Moscow that the final supply deal would top agreed-to cuts by at least 10.3 million bpd in the next two months, with no clear indication of which countries exactly will be shouldering extra curbs.

Trump tweeted Monday, "Put it mildly, the number that OPEC+ is looking to cut is 20 million barrels per day, not the 10 million that is generally being reported."

Saudi officials indicated Monday supply curbs above the OPEC+ agreement could be achieved through a combination of mandated cuts, production declines due to poor economics and purchases into oil reserves. Still, only a handful of producers outside the OPEC+ block explicitly agreed to cuts, and there was no statement Monday from the International Energy Agency on oil purchases for strategic reserves.

That being said, key producers said they would remain flexible in changing quotas or the timeline of the agreement if market conditions require such adjustments. Specifically, Saudi Arabia said Monday it could lower crude production below 8.5 million bpd in June provided reductions were done collectively with other producers on a pro-rata basis. Saudi officials also noted the idea of gradual oil cuts over the period of two years would allow producers to carefully monitor the situation in the market, while being fully committed to its stability.

Major investments banks, however, were unimpressed by the production deal, saying the agreement falls short in comparison to demand destruction caused by the pandemic. Goldman Sachs forecast demand would drop between 30 million to 35 million bpd in the next two weeks that will keep prices at depressed levels for longer than expected. Some parts of Europe that are also hardest hit with lockdowns saw a nearly 70% reduction in transport movement last week, according to the private data.

Domestically, Energy Information Administration revised lower its forecast for April's crude production from the seven shale basins to 8.7 million bpd from 9.1 million bpd a month prior. The agency sees those declines accelerating to 8.5 million bpd in May as a result of poor market conditions.

Last week, Baker Hughes reported the number of active drilling rigs in the United States fell 58 from April 3 to 504 on April 9. The previous low in the U.S. oil rig count was December 2016.

At settlement, NYMEX May West Texas Intermediate futures were down $0.35 to $22.41 barrel (bbl) and ICE Brent June climbed $0.26 to close at $31.74 bbl. NYMEX May RBOB advanced 2.60 cents to settle at $0.7033 gallon and May ULSD May futures gained 2.20 cents to finish at $0.9946 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

(CZ)

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