Oil extends gains on output cuts, US-Iran tensions

SINGAPORE: Oil extended gains in Asian trade Friday on signs that producers are already cutting output and rising US-Iran tensions, recovering from unprecedented lows triggered by the coronavirus pandemic.

US benchmark West Texas Intermediate (WTI) for June delivery was up 4.61% to US$17.26 a barrel in early trade, after settling 20% higher in New York overnight.

International benchmark Brent for June was changing hands at US$21.97 a barrel, up 3%.

Oil prices have been hit hard as the pandemic strangles demand due to lockdowns and travel restrictions, with US crude falling into negative territory for the first time this week as storage space runs low.

Earlier this month, exporting group Opec and its partners agreed to cut output by almost 10 million barrels a day from May to shore up virus-hit markets.

The deal also brought an end to a devastating battle for market share between Saudi Arabia and Russia.

ANZ said there were signs that oil producers had started cutting production, helping push prices up.

“Kuwait said that it had already started cutting production ahead of the planned 1 May start of the recent Opec+ supply agreement.

Algeria also told Opec it would be cutting immediately,” the bank said in a note.

There were also signs US output is beginning to fall – the Energy Information Administration said American crude production fell slightly to 12.2 million barrels per day last week.

Tensions in the crude-rich Middle East also gave a boost to markets.

After President Donald Trump ordered the US Navy to destroy any Iranian boats that harass American ships in the Gulf, the Islamic Republic’s Revolutionary Guards warned Thursday of a “decisive response”.

The Gulf is a major gateway for oil to reach international markets, and spikes in US-Iran tensions typically drive prices higher.

Even though prices are stabilising, they remain at multi-year lows and analysts say that demand needs to pick up again for them to truly recover.

AxiCorp global market strategist Stephen Innes said it was “probably rational to temper expectations as it’s going to take more than a celestial alignment to get WTI to stick above US$15 per barrel this month, let alone super tack to US$20”.