Oil is poised for a strong start this week after both US and international futures ended last week on a high note, buoyed by production cuts from Opec+ and reviving demand from the easing of lockdown measures.
Opec+, along with producers from other G20 nations, began cutting production this month to rebalance oil markets plagued by a fall in demand and limited storage.
Brent, the most widely-traded crude benchmark, closed at $30.97 per barrel gaining 17 per cent over the course of last week. West Texas Intermediate, the main US gauge, rounded off a weekly gain of 25 per cent to settle at $24.74 per barrel.
While April saw a record fall in demand as populations remained in lockdown, the second quarter of 2020 is expected to see the largest volume of production cuts in the history of the oil industry, according to consultancy IHS Markit. This will include shut-ins of production.
Around 17 million barrels per day of liquids production, including 14m bpd of crude, is expected to be shut in between April and June this year, according to the consultancy.
“The Great Shut-In, a rapid and brutal adjustment of global oil supply to a lower level of demand, is underway," said Jim Burkhard, vice president and head of oil markets at IHS Markit.
"All producing countries are subject to the same brutal market forces. Some will be impacted more than others. But there is nowhere to hide," he said.
Opec+ will cut 9.7m bpd in May and June and will enforce tapered cuts until 2022. G20 members including the US, the world's largest producer of oil and gas, will make voluntary adjustments.
Already, the US shale belt has begun to trim production, forced by tightening capacity constraints that led to front-month WTI contract prices turning negative for the first time last month.
Oil demand for the second quarter will continue to languish, however, averaging 22m bpd less than a year ago, IHS noted.
“When it comes to the where, why and how of production cuts, the wide range of technical, logistical, regulatory, contractual, and financial conditions means there is no single set of answers," said Paul Markwell, vice president, global upstream oil and gas at IHS Markit.
"But under these market conditions, it is pretty clear where production will be cut. Nearly everywhere," he added.