(Bloomberg) -- Oil headed for a fourth week weekly gain as production cuts and a nascent recovery in demand kept chipping away at the supply glut.
Futures in New York were steady near $34 a barrel on Friday and up around 15% for the week. U.S. drillers are in the process of curtailing 1.75 million barrels a day of existing production by early June, IHS Markit said. That’s on top of OPEC+’s agreement to curb almost 10 million barrels a day of output, which is being strictly adhered to after taking effect at the start of May.
The cuts are eroding the stockpiles built up amid coronavirus lockdowns and the price war, with inventories at the U.S. storage hub at Cushing, Oklahoma, shrinking by the most on record last week. Meanwhile, demand in China, the world’s biggest crude importer, is almost back to pre-virus levels, while economic activity is starting to recover in parts of Europe and North America.
Oil’s 80% surge this month has taken many in the market by surprise, especially given that the path back to a full economic recovery looks to be long and uncertain and the risk of a second wave of the virus can’t be discounted. It’s also raised the possibility that American shale producers will slowly start to turn on the taps again and that the strict compliance with the OPEC+ agreement might break down.
West Texas Intermediate crude for July delivery declined 0.1% to $33.88 a barrel on the New York Mercantile Exchange as of 8:19 a.m. in Singapore. It closed up 1.3% Thursday in a sixth consecutive daily gain. Brent for July settlement advanced 0.1% to $36.09 on the ICE (NYSE:ICE) Futures Europe exchange and is up around 11% for the week.
The oil industry will enter a structural phase of no production growth outside of OPEC starting next year, Goldman Sachs Group Inc (NYSE:GS). said in a note based on an analysis of upstream projects. OPEC may be required to supply as much as an additional 7 million barrels a day through to 2025 from pre-virus levels, while U.S. shale will emerge from the current slump as a lower growth and more cash generative industry, the bank said.
©2020 Bloomberg L.P.