Easing Oversupply Fears Lift Oil Prices - The Wall Street Journal

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A crude oil storage facility in Cushing, Okla. Investors are becoming less wary of storage... — A crude oil storage facility in Cushing, Okla. Investors are becoming less wary of storage reaching maximum capacity.
Photo: johannes eisele/Agence France-Presse/Getty Images

May 12, 2020 11:12 am ET

Oil prices climbed Tuesday, a sign that production cutbacks and easing pressure on storage facilities are lifting traders’ hopes for battered energy markets.

U.S. crude futures for June delivery rose 4.3% to $25.17 a barrel after Saudi Arabia said Monday it planned to cut June oil production by an additional 1 million barrels a day to 7.5 million—the lowest level since 2002. More heavily traded U.S. oil futures for July delivery rose 3.4% to $25.92 a barrel.

Prices have been staging a tentative comeback as nations across the globe begin lifting lockdown measures during a coronavirus pandemic and other oil-producing countries commit to cut production. The United Arab Emirates and Kuwait said Monday they would cut 180,000 barrels a day collectively in June.

“Prices have recently been boosted not only by hopes that demand will soon return, but also by massive voluntary and involuntary production cuts,” commodities analysts at Commerzbank said in a note.

Brent crude futures for July delivery, the global gauge of oil prices, advanced 0.8% to $29.86 a barrel.

Adding to the optimism: Investors are less wary of storage reaching maximum capacity. Analysts at Macquarie Group Ltd. expect weekly inventory due Wednesday to show a 1 million-barrel drop for last week at the storage hub in Cushing, Okla. A decline would reverse several weeks of rising stockpiles there due to an overwhelming glut.

“Entrepreneurs are getting inventive finding alternative storage as U.S. oil production is falling sharply,” Phil Flynn, a senior market analyst at Price Futures in Chicago, said in a note.

But significant pressures remain. Demand remains weak and many traders fear a second wave of lockdowns.