Oil rises further above $26 as OPEC+ begins record cuts

Oil rose further above $26 a barrel on Friday as OPEC and its allies embarked on record output cuts to tackle a supply glut due to the coronavirus crisis that has been weighing on the market.

The global oil benchmark, Brent crude, has fallen almost 60% percent in 2020 and hit a 21-year low last month as the pandemic squeezed demand and OPEC and other producers pumped at will before reaching the new supply deal that kicked in on Friday.

Brent LCOc1 for July had climbed 14 cents, or 0.5%, to $26.62 by 1336 GMT. U.S. crude CLc1 for June added $1.18, or 6.3%, to reach $20.02. Both benchmarks rallied sharply on Thursday. Brent rose 12% and U.S. crude gained 25%.

The Organization of Petroleum Exporting Countries, Russia and other producers, known as OPEC+, has agreed to cut output by 9.7 million barrels per day from May 1.

Even so, there are doubts the reduction, the largest ever agreed, will be enough as demand is unlikely to recover rapidly.

“The production cuts are finally kicking in,” said Craig Erlam, analyst at brokerage OANDA. “Prices are still extremely low though and the next two weeks will likely see extreme volatility return.”

A Reuters survey on Thursday showed that in advance of the new output cut, OPEC sharply raised production to the highest since March 2019, adding to the excess supply already in the market.

“The demand recovery will be a muted affair,” said Stephen Brennock of oil broker PVM. “What’s more, OPEC+ curbs which take effect today will be no panacea for the hefty supply imbalance.”

Underlining the difficulties some producers will face in meeting their commitments, industry sources said Iraq would struggle to meet its quota of cutting output by nearly a quarter. Iraq is OPEC’s second-largest producer.

Also supporting oil prices, the U.S. Energy Information Administration said crude inventories rose by 9 million barrels last week, less than the 10.6 million-barrel rise analysts had forecast.

“This is a second straight week of inventory and product demand figures suggesting a bottoming of the U.S. market,” said Stephen Innes, chief market strategist at AxiCorp.