Crude oil futures gave up earlier losses on Tuesday to finish higher, with expectations for a rebound in energy demand among the reasons for the late day turnaround.
Prices had spent most of the session trading lower on the back of worries about compliance with a newly-extended pact between the Organization of the Petroleum Exporting Countries and its allies to cut production by nearly 10 million barrels. In addition, Gulf producers may end their voluntary extra output cuts at the end of June and U.S. producers may reverse output cuts as prices rise.
Oil prices, however, turned positive after a “trifecta of headlines supported the argument that the oil market will find balance soon,” Edward Moya, senior market analyst at Oanda, told MarketWatch.
In an update Tuesday, the Bureau of Safety and Environmental Enforcement reported that 31% of U.S. Gulf of Mexico oil production remained offline.
That’s only a slight improvement from 34% a day earlier, “suggesting production is not coming back immediately from the region hit by Tropical Storm Cristobal,” said Moya.
Also, Nigeria is reportedly struggling to sell their crude, “which could help them refrain from excessively cheating with their production cut promises with the OPEC+ accord,” he said.
The Energy Information Administration’s Short-Term Energy Outlook report Tuesday, meanwhile, “confirmed the energy market’s view that global demand will fall to the low 80-million [barrel per day] level this quarter before rebounding back above 90-million next year,” he said.
West Texas Intermediate crude for July delivery
the U.S. benchmark, rose 75 cents, or 2%, to settle at $38.94 a barrel on the New York Mercantile Exchange, after trading as low as $37.07 during the session. Prices fell 3.4% on Monday.
Global benchmark Brent oil for August delivery
tacked on 38 cents, or 0.9%, to $41.18 a barrel on ICE Futures Europe, following a 3.6% decline a day ago on ICE Futures Europe.
OPEC+ reached an agreement over the weekend to extend a global production cut of 9.7 million barrels per day by one month, through July
Saudi Arabia, Kuwait and the United Arab Emirates, however, are not intending to extend the extra cuts of 1.18 million barrels per day that they are currently making on top of the OPEC+ target, Reuters reported.
The Saudis had cut an additional amount of production, “but they announced that they would no longer produce below their quota,” said James Williams, energy economist at WTRG Economics.
OPEC members have not yet fully complied with their current output cut pledge. A Reuters survey pegged the member compliance rate at 74% in May.
On top of that, concerns persist that other non-OPEC members will drive production higher, including North American shale-oil producers.
Given the recent climb in oil prices “U.S. producers which shut in wells or cut back on production will…