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Oil gains on hopes market may balance in coming weeks


OIL rose above US$34 a barrel, following a prediction from Russia that the market may rebalance as early as next month due to historic output cuts from global producers.

Russia, a key member of the Opec+ alliance that has pledged to trim supply by almost 10 million barrels a day, expects the market to balance in June or July. Energy Minister Alexander Novak said global output curbs have so far exceeded those agreed by the coalition.

Futures in New York on Tuesday were 2.5 per cent higher from Friday's close after there was no settlement on Monday due to a holiday.

Oil has surged more than 80 per cent this month as demand returned following the easing of lockdown restrictions in some countries, while output cuts have started to chip away at the oversupply. The International Energy Agency sees oil consumption eventually rebounding past pre-virus levels, even as some argue that the coronavirus outbreak will fundamentally shift patterns of consumption.

"Global supply is still heading lower while demand is rising," said Bjarne Schieldrop, chief commodities analyst at SEB AB. "This all lays the ground for higher prices down the road."

Nigeria, which has been stuck with millions of barrels of unsold crude in recent weeks, lifted the selling price for its supplies in June from record lows. Though smaller than in previous months, the discounts remain at unprecedentedly steep levels by historical standards, a reminder of the pockets of oversupply in the market.

Around the world, producers have slashed global production by 14 million to 15 million barrels a day so far, Russia's Novak said on Monday. The nation sees the current global surplus at 7-12 million barrels a day, according to a report from RIA Novosti.

Though producers are slashing output and demand is recovering, there are ongoing signs of the damage the virus has wrought to the industry. The Philippines has been left temporarily without any operating oil refineries as a result of weak fuel demand, according to their operators.

Petron Corp, the nation's largest oil company, said on Tuesday its 180,000 barrel-a-day refinery has been shut since May 5 for maintenance while fuel demand is low. Royal Dutch Shell Plc said the nation's only other refinery remains temporarily shut after it took it down earlier this month when consumption dropped.

Officials from both plants said they would be able to meet their petroleum product needs from inventories or imports. BLOOMBERG

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