Oil slips as Opec+ works on deal
LONDON — Opec and Russia have discussed record oil output cuts on Thursday to support prices hammered by the coronavirus crisis but talks are complicated by internal disagreements and the reluctance of the United States to join any action.
Global fuel demand has plunged as much as 30 per cent as measures to fight the virus have grounded aircraft, reduced vehicle usage and curbed economic activity.
Brent futures fell 19¢ to $32.65 a barrel by 1742GMT, while US West Texas Intermediate (WTI) crude fell 22¢ to $24.89 a barrel.
Earlier on Thursday, prices jumped more than 10 per cent as Opec+ appeared to agree to cut output, although details remained unclear.
US President Donald Trump said last week a deal he had brokered with Opec leader Saudi Arabia and Russia could lead to cuts of 10 million to 15 million bpd, or 10 per cent to 15 per cent of global supplies, an unprecedented reduction.
Opec sources have also indicated such a big cut was possible, if the US joined in. But Washington has yet to show it is ready to take part. Kremlin spokesman Dmitry Peskov said a new deal on cuts was “hardly possible” without others participating. Last week, President Vladimir Putin said he supported an overall cut of about 10 million barrels a day.
“We are ready for agreements with partners and within the framework of this mechanism — Opecplus — and we are ready for cooperation with the United States of America on this issue,” Putin said.
“According to preliminary estimates, I think that we can talk about a reduction in the volume of about 10 million barrels per day, a little less, maybe a little more,” he added.
Algerian Energy Minister Mohamed Arkab told the Opec+ virtual meeting on Thursday that oil producers should act decisively and immediately to rebalance the market and help reverse a crash in global prices. “This emergency meeting will be an opportunity for decisive and immediate action,” state news agency APS quoted him as saying in a speech at the start of the meeting. He urged Opec+ “to act quickly and decisively with firm solidarity and unity.”
The Organisation of Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, had bandied about curbs of 15 million to 20 million barrels per day (bpd), or 15 per cent to 20 per cent of global supplies. However, Iran’s oil minister said a production cut of 10 million bpd is just for May and June 2020. From July until the end of 2020 there will be a production cut of 8 million bpd, and starting January 2021, there will be a 6 million bpd cut.
“The numbers they put in are not going to get the job done,” said John Kilduff, partner at hedge fund Again Capital LLC. “A lot of hope got priced into this market over the past several days. They needed to move mountains here and they maybe moved a hill.”
Riyadh and Moscow, who fell out when a previous pact on curbing supplies collapsed in March, have signalled that a deal on cuts would depend on the United States reducing output too.
Washington has said US output was falling gradually due to lower prices, which Russia says is not the same as cutting.
Moscow and Riyadh are also struggling to agree between themselves on the levels from which output should be cut.
A source briefed on Saudi policy said the kingdom, the world’s biggest oil exporter, was ready to cut 4 million bpd, but only from the elevated April supply level of 12.3 million bpd — not its March level of below 10 million bpd.
Moscow says cuts must be based on levels in the first quarter. Two Russian sources said Russia’s maximum cut would be 2 million bpd. Its existing output is about 11.3 million bpd. “I’m not sure how Russia and Saudi Arabia would be able to iron out their differences today, it all could be stretched out,” said one Russian source, a sentiment echoed by Opec sources.
Goldman Sachs and UBS both said on Thursday that even big cuts suggested would not be enough and predicted that oil prices could fall back to $20 per barrel or even lower.
“Ultimately, the size of the demand shock is simply too large for a coordinated supply cut,” Goldman said in a note.
In the United States, gasoline demand tumbled 48 per cent to 5.1 million bpd in a three-week period to April 3.
U.S. futures settled down $2.33, or 9.3 per cent, to $22.76 a barrel while Brent closed $1.36, or 4.1 per cent, lower at $31.48 a barrel.
A cut of 10 million bpd would be the biggest output cut ever agreed by OPEC, but Russia has insisted it will only reduce output if the United States joins the deal. Other large producers like Canada and Brazil have already voiced support for cuts, though those nations are cutting output now due to market forces.
The United States has not said it will mandate output reductions. Instead, it has noted that market forces are already causing producers to pull back, as it expects its output to fall by nearly 2 million bpd by next year.
Thursday’s Opec+ talks will be followed by a call on Friday between energy ministers from the Group of 20 (G20) major economies, also hosted by Saudi Arabia.