Oil prices retreated from gains made on Monday as Saudi Arabia pledged to deepen its production restrictions by a million barrels per day, bringing its output to the lowest in 18 years.
Saudi Arabia's total production cut would average 4.8m bpd, bringing its total output for June to 7.492m bpd. Kuwait also announced it was slashing an additional 80,000 bpd, the state-run news agency Kuna said. Meanwhile, UAE energy minister Suhail Al Mazrouei said it plans to cut an additional 100,000 bpd.
"In support of efforts led by the Kingdom of Saudi Arabia to further restore stability to energy markets, the UAE will make an additional voluntary cut of 100,000 barrels per day in June. With this cut, the UAE has committed to cut in total over 44 per cent of its installed capacity," Mr Al Mazrouei said.
Brent, the international benchmark for crude, jumped on news of further cuts, but fell back again to trade 3.8 per cent lower at $29.78 per barrel at 7.33pm UAE time on Monday. West Texas intermediate (WTI), the benchmark for US oil, also declined by 1.78 per cent to $24.30 per barrel.
Saudi Arabia, the world's largest crude exporter, had earlier pledged to reduce its output, which was at a record high of 12.3m bpd for April, to 8.492m bpd, following the Opec+, G20 agreement last month.
Opec+ is trimming output by 9.7m bpd in May and June and will keep drawing back supply until 2022. Opec's core Gulf Arab members are already cutting an extra 2m bpd in addition to the stipulated quotas.
"The kingdom aims through this additional cut to encourage Opec+ participants, as well as other producing countries, to comply with the production cuts they have committed to, and to provide additional voluntary cuts, in an effort to support the stability of global oil markets," a Saudi energy ministry official told the official Saudi Press Agency on Monday.
Saudi Arabia's extraordinary voluntary cuts reversed a slow opening session.
Prices were unsteady after a resurgence in coronavirus cases around the world, including in countries that had successfully contained the outbreak such as South Korea, China, and Germany increased investors' fears of another slump in consumption.
Analysts say the recent crash in oil prices, which resulted in forced and voluntary cutbacks, could have a positive impact on future pricing.
"A rapid reduction in US shale oil production highlighted by last week’s plunge in the active drilling rig fleet to an 11-year low, a pickup in global demand and the beginning of the Opec+ deal to curb production have all supported renewed recovery hopes," said Ole Hansen, head of commodity strategy at Saxo Bank.
"At six longs per one short the long/short ratio in WTI has further room to go before reaching the recent peak at 10 from last December," he added.
The Danish bank had earlier forecast Brent to recover between $50 and $70 per barrel by the first and second quarters of 2021 as demand rises and supply is balanced.
The outlook for demand, however, looks bleak as the measures to contain the pandemic led to widespread lockdowns and rising unemployment in key markets.
Oil could regain some of its momentum later this week as last week's US rig count declined to its lowest level since September 2009, consultancy JBC said in a note.
"ICE Brent and Nymex WTI tacked on some meaningful gains at the end of last week, with the front month futures increasing by $4.55 and $4.95 per barrel week-on-week, respectively, as fundamentals optimism continues to fuel a recovery at the front of the curve," the consultancy said in a note.
The latest Baker Hughes US rig count fuelled further positive price sentiment, with the number of operating oil and gas rigs falling to an all-time low, the report said.