Oil prices rose early on Tuesday after OPEC's Middle East heavyweights pledged additional cuts, instilling hopes in the market that further production reductions could help accelerate the drawdown of the enormous oil oversupply.
As of 10.38 a.m. EDT on Tuesday, WTI Crude was surging 5.05 percent to $25.36, and Brent Crude was up 1.62 percent on the day at $30.12.
On Monday, the world's top oil exporter and OPEC leader, Saudi Arabia, said it would cut oil production by an additional 1 million barrels per day (bpd) in June on top of its promised cuts as part of the OPEC+ production cut deal.
Under the OPEC+ deal in effect from May 1, Saudi Arabia has pledged to cut its oil production to 8.5 million bpd. With the additional voluntary reduction in June, the Saudis would produce 7.492 million bpd next month. This announcement yesterday managed to nudge oil prices higher only for a few hours before the market started fearing a second wave of COVID-19 infections with relaxed lockdowns, closing lower.
After the Saudis, the United Arab Emirates (UAE) also pledged to cut even more oil production in June, and so did Kuwait.
"We will need to see how individual compliance performs under the broader OPEC+ deal, because that would tell us if we are seeing real additional cuts from the OPEC+ group, or whether these recently announced cuts will just make up for poor performance from other producers," ING strategists Warren Patterson and Wenyu Yao said on Tuesday, commenting on the pledges from OPEC's top producers.
U.S. President Donald Trump also noted the rising oil prices and Saudi Arabia's cuts in a tweet on Tuesday:
"Crude Oil prices going up as Saudi Arabia cuts production levels. Our great Energy Companies, with millions of JOBS, are starting to look very good again. At the same time, gasoline prices at record lows (like a big Tax Cut). The BEST of all Worlds. 'Transition To Greatness.'"
This is the second time in two weeks that President Trump has tweeted how good higher oil prices are. Last Tuesday, he expressed satisfaction with the rising oil prices, tweeting, "Oil prices moving up nicely as demand begins again!" A tweet from the U.S. President praising higher oil prices would have been unthinkable just four months ago.
