Oil rebounds as hopes grow for output cut
Optimism hinges on producers’ talks, but US balks at joining rivals in pact
SINGAPORE/LONDON — Oil prices rebounded on Wednesday as traders jockey for position ahead of a key producers’ meeting this week aimed at cutting output to support coronavirus-hit energy markets.
US benchmark West Texas Intermediate was up 5.7 percent to $24.98 a barrel in morning Asian trade.
A barrel of Brent, the international benchmark, was changing hands at $32.69, up 2.5 percent.
Producers from the OPEC cartel and nonmember countries are scheduled to meet via video conference on Thursday, with output cuts high on the agenda to combat massive oversupply.
Markets have been hammered in recent weeks as travel restrictions and lockdowns due to the virus pandemic strangle demand, and Russia and Saudi Arabia engage in a brutal price war.
Riyadh and Moscow are participating in this week’s meeting, raising hopes they may draw a line under their dispute and agree to cut output.
According to Reuters, Saudi Arabia, Russia and allied oil producers will agree to deep cuts to their crude output only if the United States and several others join in with curbs to help prop up prices.
However, the US Department of Energy said in a statement on Tuesday that US output is already falling without government action, in line with the White House’s insistence that it would not intervene in the private markets. That decline, however, would take place slowly, over the course of the next two years.
Global oil demand has dropped by as much as 30 percent, or about 30 million barrels per day, or bpd, as measures to reduce the virus’ spread have caused demand for jet fuel, gasoline and diesel to crash.
US President Donald Trump has threatened to impose tariffs on imports of Russian and Saudi crude, while two Republican US senators have introduced legislation that would remove US forces from ally Saudi Arabia.
While Saudi Arabia, Russia and other members of the group known as OPEC+ have expressed willingness to return to the bargaining table, they have made their response conditional upon actions by the US and other countries that are not members of the Organization for the Petroleum Exporting Countries. No agreement has yet been formalized.
“Before any meeting between OPEC and non-OPEC, there needs to be an agreement on production numbers for any country that will reduce production,” Iran’s Oil Minister Bijan Zanganeh tweeted on Tuesday, adding that the US and Canada need to play a role in determining production cuts.
‘Compromise needed’
AxiCorp global market strategist Stephen Innes said current figures being discussed point to a cut of 10 million barrels per day for the OPEC-led alliance — but cautioned this may not be enough as the virus saps global demand. “With millions of jobs and the stability of the global economy at risk, someone needs to compromise, or it will leave the industry in tatters,” he warned.
Saudi Arabia, with by far the world’s biggest reserve of extra capacity and some of the lowest production costs, said it had raised crude output to 12.3 million bpd on April 1 and planned to export more than 10 million bpd.
Russian President Vladimir Putin has said any output cuts should be made from levels in the first quarter, before Saudi Arabia and others hiked production.
OPEC sources said Riyadh wanted cuts to be calculated from its current higher level.
The head of top US oil firm Exxon Mobil Corp, Darren Woods, said on Tuesday he supported “free trade and low tariffs”, when asked about the cuts. However, his firm cut investment by a third to $23 billion, mainly in US shale fields.
Occidental Petroleum, another large US producer, argued in a letter to Texas regulators that mandated cuts would be shortsighted. Texas is the largest-producing US state and regulators there are meeting next week to consider production cuts.