Oil Prices Rise Ahead of Crunch OPEC Meeting
April 09 2020 - 11:21AM
Dow Jones News
By Joe Wallace and David Hodari
Oil prices rose ahead of a meeting where major producers are
expected to agree on big output cuts to bolster energy markets laid
low by the coronavirus pandemic.
Brent-crude futures, the global oil benchmark, climbed 9.6% to
$36.00 a barrel. West Texas Intermediate futures, the main gauge of
U.S. prices, rose 10.5% to $27.72 a barrel, lifting shares in
American energy producers. Apache Corp. traded up 29% to $9.79.
Exxon Mobil Corp. added 5.6%.
The gains came amid expectations that the Organization of the
Petroleum Exporting Countries and its allies, led by Russia, will
agree to slash production at a virtual meeting Thursday. The cartel
and its partners are holding an online gathering to negotiate a
truce in the Saudi-Russian price war and to debate output curbs of
10 million barrels a day.
An agreement to cut output "would be huge in terms of
sentiment," said Alan Gelder, vice president of refining and oil
markets at consulting firm Wood Mackenzie. "If you cut 10 million
barrels, and China's recovering and Europe then recovers and the
U.S. starts to come out of [the coronavirus lockdown], then oil
demand gets really tight really quickly."
A conference of oil ministers from the Group of 20 major
economies on Friday, convened by the International Energy Agency,
could then result in a historic international deal to lower
production. U.S. Energy Minister Dan Brouillette is due to take
part.
Thursday's virtual meeting of OPEC and its partners is fraught
with uncertainty, said Saad Rahim, chief economist at Swiss
commodities trader Trafigura. "This may be the hardest meeting I've
seen to call going into it," Mr. Rahim said. "All sides agree a
deal needs to get done. I don't think they agree on what a deal
looks like."
Prices were volatile Thursday amid conflicting reports about
whether Russia would agree to production curbs, and on the baseline
that could be used for a reduction in output.
Cuts of 10 million barrels a day would likely give oil prices a
short-term boost, traders said. If demand starts to recover, a
slower pace of oil production could help push Brent-crude prices
above $40 a barrel by October, according to analysts at Goldman
Sachs Group.
Production curbs could also ease logistical strains in the oil
market, stopping storage facilities from overflowing with a glut of
crude and lowering the cost of chartering oil tankers, which has
soared.
"You have some enthusiasm from traders coming from the
expectations that OPEC might reach a deal to cut output," said
Paola Rodríguez-Masiu, senior oil analyst at Rystad Energy. "It
won't be enough to balance the market, but it will be enough to
handle the oversupply with the current available storage."
Still, even the largest collective production cuts in history
may not be enough to support higher prices in the coming weeks as
world-wide lockdowns pummel demand for gasoline, diesel and jet
fuel. Global oil consumption is on course to plunge by almost 35
million barrels a day in April, according to Mr. Rahim.
"In the context of the current demand destruction, it's
nothing," said Tamas Varga, an analyst at brokerage PVM Oil
Associates, pointing to Russian media reports that Moscow is
considering an output cut of 1.6 million barrels a day.
Traders will scour the fine print of any agreement. One key
detail is the baseline for the decline in output. Saudi Arabia,
Russia and others have started to pump more oil since earlier cuts
expired at the end of March, so there is a big difference between
reducing production from current levels and those that prevailed in
the first quarter.
Traders will also home in on the duration of any cuts, whether
there are mechanisms for enforcing compliance, and the degree of
involvement that OPEC and Russia require from the U.S.
Some experts don't expect a deal to be reached. There is little
incentive for Russia and Saudi Arabia to cut production given that
their battle for market share has sent shock waves through the U.S.
energy sector, according to Chris Midgley, head of analytics at
S&P Global Platts.
"The U.S. industry is on its knees," Mr. Midgley said. "Why
throw them a lifeline now?"
Write to Joe Wallace at Joe.Wallace@wsj.com and David Hodari at
David.Hodari@dowjones.com
(END) Dow Jones Newswires
April 09, 2020 11:06 ET (15:06 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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