Oil edges up as possible output cuts sit on horizon amid coronavirus, supply glut

An oil pump in Texas in the US. (File photo: Reuters)

Oil rose after a two-day drop as investors weighed whether output cuts being discussed by the world’s top producers will be enough to offset the demand destruction wrought by the coronavirus.

Futures in New York climbed around 6 percent to near $25 a barrel after losing a sixth of their value over the previous two sessions. Saudi Arabia and Russia are hammering out an agreement that a delegate said will reduce global output by about 10 million barrels a day. That compares with OPEC’s estimate for demand to fall by 11.9 million barrels a day this quarter.

Some form of cooperation from the US, the world’s biggest producer, will be required, according to delegates involved in the talks. However, a drop in America’s crude output forecast released Tuesday could be enough to satisfy Riyadh and Moscow. The Energy Information Administration said it expects production to average 11.76 million barrels a day in 2020, down from a previous projection of 12.99 million.

President Donald Trump said on Fox News that he’d talked with the Saudi and Russian leaders and that he expected the ongoing global oil negotiations would “work out.”

The OPEC+ meeting will be held Thursday afternoon Vienna time, while a G-20 meeting of energy ministers will follow a day later. If a deal can’t be reached or if it fails to stem the rout in oil prices this year, things could get ugly. Almost 40 percent of US producers face insolvency within the year if crude stays near $30 a barrel, according to a Federal Reserve Bank of Kansas City survey.

“A cut of 10 million barrels per day would be significant and would lend some support to prices,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “However, without US participation, other producers may not have strong incentives to cut output by such an extent.”

West Texas Intermediate for May delivery rose 5.5 percent to $24.93 a barrel on the New York Mercantile Exchange as of 10:01 a.m. in Singapore. It fell almost 17 percent over Monday and Tuesday.

Brent for June settlement climbed 2.3 percent to $32.61 a barrel on the ICE Futures Europe exchange after dropping 7 percent in the first two days of the week. The global benchmark traded at a $2.72 premium to WTI for the same month.

The EIA said it expects US production to drop to just over 11 million barrels a day next year from around 13 million now. The forecast demonstrates that there are already projected cuts of 2 million barrels a day, without any intervention from the federal government, an official at the US Energy Department said.

In a sign of the growing energy glut in the world’s largest economy, the American Petroleum Institute reported stockpiles rose by 11.9 million barrels a day last week, according to people familiar with the data. Inventories at the Cushing, Oklahoma storage hub climbed by 6.8 million barrels, the API said, which would be the biggest build in data going back to 2004 if confirmed by EIA figures due later on Wednesday.

Read more:

Iran doesn't agree with holding OPEC+ meet without clear outcome: Oil minister

US pushes back on OPEC+ call to join oil output cuts

Oil prices up as hopes build for global production cut

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Last Update: 11:06 KSA 14:06 - GMT 11:06
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