Oil rose towards $27 a barrel on Friday as OPEC and its allies began a record output cut to tackle a supply glut weighing on the market due to the coronavirus crisis, Reuters reported.
The global oil benchmark, Brent crude, has sunk by almost 60 percent in 2020 and reached a 21-year low last month as the coronavirus pandemic squeezed demand and OPEC and other producers pumped at will before reaching a new supply cut deal which began on Friday.
Brent for July rose 37 cents, or 1.4%, to $26.85 by 1205 GMT. US crude for June added 83 cents, or 4.4%, to $19.67. Both benchmarks rallied sharply on Thursday. Brent rose 12% and US crude gained 25%.
Output cuts of 9.7 million barrels per day by the Organization of Petroleum Exporting Countries, Russia and other producers, known as OPEC+, began on Friday. Even so, there are doubts the reduction, the largest ever agreed, will be enough.
Meanwhile, Bloomberg revealed that oil headed for its first weekly gain in a month as global production cuts began to take effect, while early signs the coronavirus-driven plunge in demand might be starting to bottom out also aided sentiment.
Futures in New York rose toward $20 a barrel in Asian trading and are up around 16 percent so far this week. The OPEC+ bloc’s 10 million barrels a day of output reductions officially began Friday, while other producers – including Norway and ConocoPhillips – have said they’re also cutting back.
Crude’s revival this week was supported by government data showing US gasoline demand rose by the most in almost a year last week and stockpiles of the fuel shrunk. In China, the world’s biggest oil importer, rush-hour traffic in some of the biggest cities has recovered to pre-virus levels.
While the demand data is encouraging it will take some time to clear a massive glut that has built up due to virus lockdowns and the price war.
The recent price boost is an indication of stabilization rather than recovery, with the production cuts contributing to this, said Michael McCarthy, chief market strategist at CMC Markets Asia Pacific.