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Futures rose 3.1% in New York Monday, closing above $20, after Genscape reported a 1.8 million-barrel build in inventories in Cushing, Oklahoma, the delivery point for West Texas Intermediate crude. If the U.S. government reports a similar number Wednesday, it would mark the smallest increase at the hub since mid-March.<\/p>\n
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The discount on crude for June delivery relative to July, a structure known as contango, tightened to its narrowest in about a month, indicating that concerns about oversupply may be easing. Last week, crude rallied 60% in three days on early signs of recovering demand and the start of output curbs from OPEC+ and other producers.<\/p>\n
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\u201cIt gives a message to the overall market that everyone is leaning in,\u201d Reid Morrison, global energy advisory leader for PwC, said in a phone interview.<\/p>\n
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However, the rebound will likely be a brief reprieve, according to Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA, as the market\u2019s supply overhang eclipses the size of planned productions cuts.<\/p>\n
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\u201cThere is a lot of upward momentum in supply that needs to be reversed,\u201d Tchilinguirian said.<\/p>\n
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OPEC production\u00a0surged\u00a0by the most in almost 30 years in April as members waged a price war, and kept supplies high even after reaching a cease-fire in the middle of the month. It will take time to work through that inventory.<\/p>\n
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In the U.S., Texas regulator Ryan Sitton said Monday on Bloomberg TV that an effort to\u00a0mandate\u00a0oil production cuts is \u201cdead\u201d a day before the state was set to vote on the measure. Even without quotas, though, explorers are\u00a0volutarily shutting in\u00a0massive volumes of oil, with Exxon Mobil Corp., Chevron Corp., and ConocoPhillips planning to curb as much as 660,000 barrels a day of combined American output by the end of June.<\/p>\n
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\u201cExactly what the market needs to do is have a price that will force the reduction of production,\u201d Tchilinguirian said. \u201cIf the TRC is not going to mandate cuts, it looks like the price will have to do the hard work of bringing about the necessary volume adjustment on the supply side.\u201d<\/p>\n
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