(Bloomberg) -- Oil firmed in Asia as additional output cuts announced by Saudi Arabia and others were seen easing some of the pressure on storage sites that are nearing capacity.
Futures in New York rose 2.1%, erasing most of Monday’s drop. Saudi Arabia announced a surprise move to slash its output by another 1 million barrels a day on top of what it already agreed with OPEC allies, while the United Arab Emirates and Kuwait also announced additional cuts for June.
While the extra curbs would not be enough to re-balance the market, they would at least relieve some of the pressure on bulging storage infrastructure, said Paola Rodriguez Masiu, an oil markets analyst at Rystad Energy.
“We will now probably avoid global storage tank tops if demand ramps up as expected and new lock-down measures are not imposed,” she said.
Doubts over Saudi Arabia’s ability to implement the extra cuts had seen crude decline on Monday, while some suggested the move was indicative of the market’s underlying weakness.
“If somebody wanted Saudi’s oil, they would produce it,” said Michael Hiley, head of over-the-counter energy trading at LPS Futures. “The reverse logic is because they are willing to cut another million, it means they don’t have buyers for that million, so what appears to bullish is actually bearish.”
Questions also remain over the timing of a strong pick-up in demand. China has seen a steady recovery in air travel and traffic in its capital city, but in Europe various degrees of lock-down continue to hobble fuel demand. In the U.S., an OPIS report showed that the volume of fuel sold by retailers across the nation rose just over 7% during the week ended May 2. However, the rebound is still far below 2019 levels.
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Saudi Aramco’s first quarter earnings later on Tuesday will give an insight into how much the oil price collapse has affected the business so far, although there won’t be a conference call or management presentation for analysts or the press.
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