Oil prices rose on Friday and were on course for a second consecutive week of gains as U.S. producers rapidly shut crude production and more states moved ahead with plans to relax lockdowns intended to prevent the spread of the worst public health crisis in a generation.
U.S. West Texas Intermediate crude gained $1.19, or 5%, to settle at $24.74 per barrel, while international benchmark Brent crude gained $1.51 to settle at $30.97 per barrel.
“This advance of the past couple of weeks has been a bit suspect given the fact that coronavirus cases continue to increase and the U.S. crude surplus is maintaining a steep up trend where a record U.S. stock level is likely to be achieved in next week’s EIA report,” Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, said in a report.
The U.S. Energy Information Administration’s weekly report on Wednesday showed 15 weeks of consecutive rises in crude stocks although the rate of growth in inventories has slowed since a record build of 19 million barrels in early April.
However, the number of operating oil and natural gas rigs fell by 34 to an all-time low of 374 this week – reflecting data going back 80 years – as the energy industry slashes output and spending to deal with the coronavirus-led crash in fuel demand.
North American oil companies have shut production faster than analysts expected and are on track to withdraw about 1.7 million barrels per day (bpd) of output by the end of June.
These commercially-driven cuts are in addition to those by Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a group know as OPEC+, which began implementing a deal to curb a record 9.7 million bpd from the start of May.
Market spectators are now watching for more data that supports OPEC+ countries are complying with production cuts, according to Andrew Lipow, president of Lipow Oil Associates in Houston.
“I expect now prices will pull back to $20 a barrel because skepticism will come into the market about the compliance of OPEC+ on the production cuts,” said Lipow.
Iraq has yet to inform its regular oil buyers of cuts to its exports, suggesting it is struggling to fully implement supply cuts.
“All it takes is one or two countries not to comply and it could open the door for others,” Lipow said.
Australia on Friday became the latest country to plan an easing of lockdowns, while France, parts of the United States and countries such as Pakistan are also planning to ease restrictions.
Market participants are watching as the economic crisis unfolding in the United States affects oil demand in the coming months. The world’s biggest economy lost a staggering 20.5 million jobs in April, the steepest plunge in payrolls since the Great Depression.