Crude oil ETFs are climbing on Wednesday, as oil futures rallied again, aided by the most significant weekly drop in U.S. crude supplies so far in 2020, despite an OPEC+ committee agreement to reduce record production cuts beginning next month.

The United States Oil Fund LP (USO) gained 1.45% while the Energy Select Sector SPDR ETF (XLE) is up 1.83%, boosted by Chevron and Exxon shares, which are gaining for the second day in a row.

At the Joint Ministerial Monitoring Committee meeting Wednesday, the Organization of the Petroleum Exporting Countries and allied producers said they will limit record production cuts of 9.7 million barrels per day to 7.7 million barrels per day beginning in August through the end of the year amid possible signals of amelioration in the oil market.

Iraq, who was not able to fully comply with the cuts in May and June will make adjustments to offset for the added output. Including that compensation, Saudi Energy Minister Prince Abdulaziz bin Salman said actual curtailing of supply will reach almost 8.1 million to 8.2 million barrels per day. An OPEC+ document seen by S&P Global Platts, however, revealed that 13 countries pumped above their quotas in the first two months of the deal by a combined 840,000 barrels per day.

“Nobody could really expect OPEC+ to keep the 9.7 million bpd curtailments into August,” said Paola Rodriguez-Masiu, senior oil markets analyst at Rystad Energy, in a market update. “Boosting output by 2 million bpd is not little, but the demand recovery, even though a little slower than expected, justifies it.”

 August West Texas Intermediate crude climbed 48 cents, or 1.2%, to $40.77 a barrel, while September Brent crude added 39 cents, up 0.9%, at $43.29 a barrel on ICE Futures Europe.

In the U.S. Wednesday, the EIA reported that domestic crude inventories shed 7.5 million barrels for the week ending July 10, a massive decline compared with a forecast by analysts polled by S&P Global Platts that called for an average drop of 2.1 million barrels.

“A huge drop in imports has yielded the biggest draw to oil inventories since the last week of last year,” said Matt Smith, director of commodity research at ClipperData.
Despite the cuts, some analysts see a need for more oil production in the near future.

“The story of the report is we will see more draws in the coming weeks,” said Phil Flynn, Analyst at Price Futures Group.

“We will see a tightening of supplies and the market is signaling that we are going to need more oil pretty soon, probably by August.”

Other analysts see that the recent resurgence of the coronavirus in the United States and other countries could keep traders wary.

“Although the demand for crude has jumped in recent weeks, rising coronavirus cases in the United States along with some cities in other major economies reimposing shutdowns have the potential to hit demand,” Lukman Otunuga, Senior Research Analyst at FXTM.

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