Oil Buoyed by Production Cuts to End Historic Week

By Olivia Raimonde (Bloomberg) — Oil edged lower for the week after paring losses following the dramatic collapse on Monday that saw prices in New York plunge below zero for the first time in history.

West Texas Intermediate for June delivery rose 2.7% Friday, closing the curtain on a tumultuous week of wild price swings. U.S. operators have started to shut old wells and halt new drilling, actions that could reduce output by 20%. Russia’s seaborne exports from the Baltic will fall to a 10-year low in May, while Kuwait and Algeria said they are reducing production earlier than required under the OPEC+ deal.

“The production cuts are helping sentiment,” Andrew Lebow, senior partner at Commodity Research Group said. “We have a long way to go to balance the market. Traders are still very concerned about the storage situation.”

Oil exploration across the U.S. fell the most in 14 years with drillers idling 60 rigs, according to data from Baker Hughes Co. on Friday. This marks the sixth straight week of decreased activity levels, halting almost half of American exploration.

“Rig counts are a drop in the bucket,” said Tariq Zahir, commodity fund manager at New York-based Tyche Capital Advisors LLC. “Demand has to come back and until you see that it’s going to be a very hard argument to say why crude oil should massively go higher.”

Still, a massive glut remains and it won’t clear quickly, consultant FGE said, deepening its forecast for demand loss yet again. In a sign of how severe the supply imbalance is, traders are using barges – usually busy moving fuels around Europe’s petroleum-trading hubs – as cargo storage instead. Meanwhile, an American pipeline operator is looking at ways to free up space on its conduits to stock more crude.

With no clear indication of when demand might recover, the market is set for a prolonged slump that will reshape the industry for years to come. Oil’s collapse will be followed by the weakest recovery in history, according to the World Bank.

“There are only two things that can save the market from its current anguish: a recovery in demand or additional supply cuts,” said Stephen Brennock, an analyst at PVM Oil Associates. “Tumultuous, erratic, and unprecedented — the curtain is about to fall on a historic week for the oil market.”

–With assistance from Alex Longley, Dan Murtaugh, James Thornhill and Saket Sundria.

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