WASHINGTON (DTN) -- Following a two-day rally, crude and product futures on New York Mercantile Exchange and Brent crude on the Intercontinental Exchange were mixed in early trade Friday, although all contracts remain on track for hefty weekly gains spurred by the start of 9.7 million barrels per day (bpd) output cuts from Organization of the Petroleum Exporting Countries and allied partners and hopes of imminent demand recovery as measures to stop the spread of coronavirus pandemic are gradually rolled back.
In early trading, NYMEX West Texas Intermediate June futures were up $0.55 near $19.30 after registering gains in five out of the past seven sessions, with the July contract narrowing its premium to $2.70 barrel (bbl). The international crude benchmark firmed as the July Brent contract assumed the front-month position, trading $26.50 bbl. NYMEX June ULSD were little change near $0.8325, moving higher on a spot-month basis following Thursday's expiration of the May contract. June RBOB futures slumped 2.15 cents to $0.7620, reversing lower from a $0.8029 six-week high on the spot continuous chart.
OPEC+ on April 12 agreed month to reduce production by 23% in May and June amid a crash in demand and glut in supply. A number of producers, including Kuwait, Kazakhstan and Nigeria, announced early curtailments to bring their production rate in line with the agreement. Nigerian oil minister, Timipre Sylvia, said the country already reduced its output by 417,000 bpd in April ahead of the pact's start date Friday, and reached out to international oil companies operating in West African nation to cut their operations.
Shell said Thursday it expects its oil and gas production to fall to between 1.75 million and 2.25 million bpd in the second quarter from 2.7 million bpd in the first quarter. The company said it saw 40% of the drop resulting from the OPEC-led cuts.
Kazakhstan oil minister, Uzhakhai Karabalin, also noted Friday the country's oil industry began to implement a pledged quota of 390,000 bpd for May and June, while targeting mature wells at certain large fields.
Analysts, however, remain skeptical that some of the large producers would manage to cut production so quickly without necessarily infrastructure or expertise in place. Industry sources say Iraq, the second largest producer within OPEC+ alliance, is unlikely to meet its quota this month as the country is still in talks with oil majors operating the country's large Southern fields. Iraq pledged to cut its production this month by 1.061 million bpd or 23% of its output. "Majority of Iraq's production come from the foreign companies' fields and we need their cooperation to help comply with OPEC cut deal," said the Iraq official.
According to sources, Russia's oil infrastructure isn't geared to quick and deep production cuts, threating to undermine the agreement.
"Production cuts of such magnitude have never been done in Russia so we are venturing into the unknown," said Vladimir Milov, a former deputy energy minister and now an opposition politician. "There are just too many technical challenges to achieve these cuts.".
Liubov Georges can be reached at email@example.com
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