Crude Oil Gains Ahead of Producers Meeting
Oil markets gained Tuesday, with investors warming to the idea that world’s main oil producers will agree to cut output at a meeting on Thursday in the wake of a dramatic fall in prices caused by the coronavirus outbreak.
AT 9:35 AM ET (1335 GMT), U.S. crude futures traded 1.6% higher at $26.50 a barrel, while the international benchmark Brent contract rose 2.2% to $33.80. Both contracts were trading above $60 at the start of the year.
Russia on Tuesday confirmed its participation in the meeting of leading oil producers set for April 9, joining Saudi Arabia and the rest of the OPEC members. That’s set to be followed on Friday by a meeting of G20 energy ministers, which will include representatives of two other large producers outside the OPEC+ bloc, Canada and Brazil, in addition to the U.S.
The conference, due to be held via a video link, had been initially scheduled for April 6 but was delayed amid a war of words between Russia and Saudi Arabia.
“Oil prices are holding their ground with market expectations building on an agreement for an output reduction of 10 million barrels per day (bpd), or at least close to 10 million bpd,” BNP Paribas (PA:BNPP) analyst Harry Tchilinguirian told the Reuters Global Oil Forum.
A previous three-year deal to stabilize oil prices collapsed a month ago, with Saudi Arabia and Russia blaming each other for failure to find a compromise at an OPEC+ meeting in Vienna on March 6.
Much will also depend on what role the U.S. plays in any potential production cuts. The OPEC+ group has been curtailing production in recent years while U.S. producers have increased their own output, resulting in the U.S. becoming the world’s largest crude producer.
President Donald Trump’s efforts to persuade U.S. companies to cut production came to nothing at the weekend. He has since focused on market forces pushing the country’s output to decline in response to falling prices.
For example, Continental Resources (NYSE:CLR) announced Tuesday a sharp reduction in output for the next month and a half.
“Global crude oil and product demand is estimated to have been impacted by 30% due to COVID-19. Accordingly, we are reducing our production for April and May 2020 in a similar range,” said CEO Bill Berry.
Coordinated action by U.S. oil producers could be seen as a violation of antitrust laws.
Turning back to Tuesday, the American Petroleum Institute will issue its measure of weekly U.S. oil stockpiles after the bell. Last week it reported a huge build of more than 10 million barrels.
The EIA will also release its latest Short Term Energy Outlook. “Last month, the EIA forecast that 2020 U.S. output would grow by 770Mbbls/d, and then shrink by 340Mbbls/d in 2021, and there is clearly further downside in the months ahead,“ said ING, in a research note.