By Barani Krishnan
Investing.com – Oil prices settled up as much as 6% after Algeria suggested that an OPEC meeting due in less than a day could agree on “massive” output cuts nearer to 10 million barrels per day.
The United States, the world’s largest crude producer, meanwhile, signaled it will contribute about 1.2 million bpd at most, raising questions on what other producers could do.
West Texas Intermediate, the New York-traded benchmark for U.S. crude, settled up $1.46, or 6.2%, at $25.05 per barrel after Bloomberg reported the “massive” cuts idea floated by Algerian Minister Youcef Yousfi.
Brent, the London-traded global benchmark for crude, settled up 97 cents, or 3%, at $32.84.
OPEC is scheduled to hold a video meeting on Thursday with Russia and other allies under the OPEC+ initiative to discuss output cuts that could mitigate estimated demand loss of 20 million to 30 million barrels per day from the Covid-19 crisis.
Energy ministers from the Group of 20 countries are to meet on Friday through another video link to discuss the same, with Energy Secretary Dan Brouillette expected to represent the United States.
U.S. crude production was estimated to have fallen to 12.4 million bpd last week from the 13 million bpd noted during the week to March 27, the Energy Information Administration said in its weekly supply-demand report.
In a separate report on Tuesday, the EIA expected U.S. production to average 11.8 million bpd through 2020, adjusting to demand lost to the coronavirus crisis. U.S. crude output hit a record high of 13 million bpd earlier this year.
Analysts said they expect Brouillette to offer the EIA data as proof and contribution of U.S. cuts to production.
“Brouillette already (likely) gave in today’s EIA weekly report (as) the US supply cut contribution to GLOPEC,” Olivier Jakob, head of Zug, Switzerland-based energy consultancy Petromatrix tweeted, referring to the G-20 meeting.
That will be consistent with the message that has been coming out of the White House since President Donald Trump initiated this week’s producer meetings on oil.
Trump, who got the ball rolling after calling on Saudi Crown Prince Mohammad bin Salman and Russian President Vladimir Putin to save the market, said on Monday he wasn’t considering additional U.S. cuts above what was “automatically” happening on the market front.
But the implied 1.2-million-barrel “offer” by the United States seemed like a drop in the bucket, considering the lost demand to the pandemic, which was at least 20 times more.
Reuters reported that Russia was ready to cut its production by around 1.6 million bpd, citing an energy ministry source at the Kremlin.
At the same time, the Kremlin said earlier in the day that “market-driven oil production declines are not the same as actual production cuts” — a warning that the U.S. offer of “automatic” market-based declines won’t be enough.
Saudi Arabia hasn’t committed to a hard number yet.
“It’s possible OPEC won’t come to an agreement because the U.S. says a cut is happening ‘naturally’ and it won’t do more,” said Tariq Zahir, founder of the oil-focused Tyche Capital Advisors fund in New York. “In that case, we could see oil prices drop to the teens in a rather accelerated fashion.”
WTI hit an 18-year low of $19.27 last week.
John Kilduff, founding partner at New York energy hedge fund Again Capital, agreed with Zahir’s view.
“I think this is going to end badly for oil by next week,” Kilduff said.
Oil Jumps 6% as Algeria Talks of ‘Massive’ Cuts Amid Modest U.S. Offer