"Record-Low Crude Oil Production Cut Agreement Likely to Continue Beyond July"

WTI 6.8% ↑
Macquarie "Cushing Crude Oil Storage Inventory Likely to Decrease"
Saudi Arabia Announces Additional 1 Million Barrel Production Cut

[Asia Economy Reporter Naju-seok] International oil prices showed an upward trend as concerns over oversupply subsided. The sudden announcement of production cuts by Saudi Arabia, along with news that crude oil inventories at the Cushing oil storage facility in Oklahoma?a symbol of U.S. crude oil storage?are expected to decrease, temporarily alleviated underlying anxieties in the oil market.

[Image source=Reuters Yonhap News]

On the 12th (local time) at the New York Mercantile Exchange (NYMEX), WTI (West Texas Intermediate) crude oil for June delivery closed at $25.78 per barrel, up 6.8% ($1.64) from the previous day. Amid significant market instability, including international oil prices falling into negative territory for the first time ever, expectations of reduced crude oil supply acted as a positive factor.

According to major foreign media, OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies) is considering maintaining the current daily production cut of 9.7 million barrels even after July. Due to reduced oil demand caused by the COVID-19 pandemic, oil-producing countries agreed to cut daily production by 9.7 million barrels until next month. From July onward, the production cut is planned to be lowered to 7.7 million barrels per day.

However, it is reported that OPEC+ is reviewing the possibility of maintaining the current record-high production cut volume even after July. The final decision will be made at the next OPEC+ meeting.

Additionally, Saudi Arabia announced the day before that it would voluntarily reduce its daily oil production by an additional 1 million barrels. Under the OPEC+ production cut agreement, Saudi Arabia had already lowered daily production to 8.5 million barrels, and now it plans to reduce it further by 1 million barrels voluntarily. Considering that Saudi Arabia produced 12.3 million barrels per day in March this year, this represents a reduction of over 40%.

The decrease in crude oil inventories at the Cushing storage facility also acted as a positive factor. Analysts at Macquarie Group predicted that crude oil inventories at Cushing would decrease by 1 million barrels last week. Storage capacity has been a major variable influencing oil prices. The reason WTI fell into negative territory last month was due to the lack of storage space for purchased crude oil. As crude oil inventories accumulated at Cushing, which serves as a hub for U.S. crude oil, market concerns about storage capacity were significant. However, news that the storage burden at the Cushing facility has eased also had a positive impact.

Furthermore, the slowdown in the spread of COVID-19 in the U.S. and Europe and the resumption of economic activities are also positive for the oil market. Since the sharp decline in oil demand due to COVID-19 is the fundamental cause of crude oil oversupply, it is expected that oil demand will increase as economies around the world restart.

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