WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied in afternoon trade Thursday as an unexpected decision from the Organization of the Petroleum Exporting Counties and Russia led producers outside the cartel to gradually raise production targets for the next three months and Saudi Arabia's announcement it would gradually unwind a unilateral 1 million barrels per day (bpd) cut beginning in May signal the producer group sees that a much anticipated global demand recovery is now underway.
OPEC+ released a schedule for the upcoming tapering of production cuts for May, June and July, showing the 23-nation alliance would reduce March's 7.05 million bpd in production cuts to 6.55 million bpd in May, and would bring back another 350,000 bpd in output in June, with production cuts reduced to 5.759 million bpd in July. Additionally, Saudi Arabia announced it would bring back online 250,000 bpd of output next month, 350,000 bpd in June, and 400,000 bpd in July after holding production steady at about 8 million bpd for the past two months.
"We will do what is being required by the markets," said Saudi Oil Minister Prince Abdulaziz earlier this month. "We are not required to bring it back fast or furious. We will bring it back at our convenience."
The news came as a surprise for a market that was largely expecting another rollover of current production cut for at least another month amid rising COVID-19 infections in Europe and other regions, prompting major oil consuming economies to enact demand-sapping lockdowns. Earlier this week, France announced a nationwide lockdown, shuttering schools and nonessential businesses, and Italy extended its quarantine measures until the end of April, while parts of the German economy remain closed off by forced shutdowns.
Despite these developments however, Europe's manufacturing sector shows signs of accelerated growth, benefiting from strong demand for new exports orders from the United States and China. German manufacturers reported the highest growth on record in March. In France, goods producing industries also saw the steepest growth since at least September 2000, giving further indication demand conditions are improving ahead of the anticipated reopening of the global economy later this year.
Domestically, business activity in the manufacturing sector surged to a 37-year high 64.6 in March, according to the data released this morning by the Institute of Supply Management. With manufacturing representing about 12% of the U.S. economy, the data bodes well for a much-anticipated rebound.
"The spring and summer months look great for the national oil markets," said the survey's responders, representing the petroleum and coal industry.
Economic growth is expected take off this year, juiced by the White House's massive $1.9 trillion pandemic relief package and the reopening of nonessential businesses as more Americans are vaccinated against the coronavirus.
The International Monetary Fund is expected to raise global growth forecasts next week triggered by U.S. stimulus and progress in COVID vaccinations.
"We now expect a further acceleration; partly because of additional policy support -- including the new fiscal package in the United States and partly because of the expected vaccine-powered recovery in many advanced economies later this year," IMF's Managing Director Kristalina Georgieva said in a speech Tuesday.
On the session, May West Texas Intermediate futures surged $2.29 to settle at $61.45 bbl and the June Brent contract on ICE rallied $2.12 to $64.86 bbl. NYMEX May ULSD futures advanced 6.18 cents to $1.8316 gallon and NYMEX RBOB May futures rallied 6.26 cents for a $2.0223 gallon settlement.
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