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Crude Oil Higher as Producers Cut Output and Demand Rises

By Peter Nurse - Oil prices pushed higher Tuesday, amid signs producers are making good their promises to cut crude supply while demand picks up.

At 9:15 AM ET (1315 GMT), U.S. crude futures traded 3.4% higher at $34.38 a barrel. The international benchmark Brent contract rose 1.9% to $36.22.

Earlier Tuesday Russia reported its oil output had nearly dropped to its target of 8.5 million barrels per day for May and June under its deal with the Organization of the Petroleum Exporting Countries and other leading producers, known as OPEC+.

The group is set to meet again in early June to discuss maintaining the supply cuts, having agreed in April to cut output by nearly 10 million bpd for May and June. Russia's Energy Ministry met on Tuesday with domestic oil producers, ostensibly to coordinate production levels over the coming months.

But it’s not only cuts by OPEC+ which are having an impact, as “the U.S. continues to play a role in this, with market-driven declines. While we have seen U.S. production shut-ins, we continue to see drilling activity fall,” said analysts at ING, in a research note.

The latest data from Baker Hughes showed that the number of active oil rigs fell by 21 over the last week, leaving the count at just 237 - more than a 65% fall since mid-March.

On the demand side, Fatih Birol, executive director of the International Energy Agency, offered up an upbeat assessment on the prospects for a demand recovery, saying oil consumption hasn’t yet peaked and thus the virus hasn’t resulted in a long-term impact on the market.

Energy consultancy group Wood Mackenzie tends to agree, calling for a rapid recovery in oil demand in China. The consultant puts second-quarter oil demand at 13 million barrels a day, still just below last year's level but very close to it.

Of interest this week will be annual general meetings from many of the major oil producers in the U.S. and Europe, with Total (PA:TOTF), BP (NYSE:BP), Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) among those facing questions from shareholders. The recent decline in prices has cast serious doubt over the ability of listed majors - already under pressure from investors to improve their carbon footprints - to monetize their reserves over the long term. 

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