WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange extended gains into Thursday's session, with U.S. crude benchmark adding another 16% after several members of the Organization of the Petroleum Exporting Countries and Russia-led partners voiced their support to expedite supply cuts prior to the May 1 start date for their 9.7 million barrels per day (bpd) supply agreement.
Kuwait, the fourth largest producer within the OPEC+ coalition, announced Thursday it would execute its 23% supply quota ahead of schedule, citing "responsibility to respond to market conditions." It remains unclear however if Kuwait has already reached full compliance with its quota or just part of it. Energy Intelligence reported Saudi Arabia this week began reducing production from a maximum capacity of around 12 million bpd in preparation for lowering its output to 8.5 million bpd in May. Russian Energy Minister Alexander Novak previously instructed oil companies to identify priority assets up for curtailment.
Markets are likely to remain extremely volatile until the production deal goes into full effect and works its way through inventory surpluses; that might take months.
Domestically, oil drillers began shutting in wells in shallow and deep waters in the Gulf of Mexico following the historic price collapse earlier this week, according to the Wall Street Journal. Due to high costs of offshore production, oil executives worry that the region's production may never fully recover. The offshore oil sector last year accounted for about 2 million bpd or 15% of U.S. production.
Rystad Energy projects tight U.S. oil production will decline 1 million bpd by May, 2 million bpd by July and 3 million bpd by October to November, with the Permian Basin accounting for more than half of the national decline.
On the demand side, weekly inventory data reported gasoline demand in the United States pushed higher for the second week.
In China, the world's second largest economy, fuel demand is seen recovering from deep losses in the first quarter, with the optimism coming as Beijing eased coronavirus-led restrictions on personal mobility. The Oxford Energy Institute projects demand for refined fuel, including diesel, gasoline and jet fuel, in the second quarter may rise by 2.4 million bpd or 23% from the first quarter.
Moving forward, commuters may choose to avoid public transport due to lingering concerns over virus and instead opt for a private car especially in large cities.
NYMEX June West Texas Intermediate futures advanced $2.72 to settle at $16.50 barrel (bbl) and ICE June Brent futures moved up $0.96 to $21.33 bbl. NYMEX May RBOB futures edged up 0.52 cents to close at $0.6436 gallon after gaining over 28% in Wednesday's trade. NYMEX May ULSD futures settled fractionally higher at $0.7345 gallon, moving off Wednesday's 18-year spot low at $0.6725 gallon.
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