Oil prices pare earlier gains as OPEC+ works on output cut deal

NEOil prices were up almost 2% on Thursday, pulling back from an earlier surge as OPEC and other crude producers work on a deal to drastically cut output in response to a collapse in global demand from the coronavirus.

A worldwide lockdown to slow the spread of the coronavirus pandemic has cut fuel demand by roughly 30%, and contributed to a crash in prices that took major benchmarks down by more than two-thirds.

"It is clear no one wants to be short going into this meeting, but they might be ready to fade any major rally," said Edward Moya, senior market analyst at OANDA in New York.

Earlier on Thursday, prices jumped over 10% as producers appeared set to cut production sharply, but the exact details of the cuts remain unclear.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia - a group known as OPEC+ - held talks on Thursday on record production cuts of up to 20 million barrels per day (bpd), equivalent to about 20% of global supplies, to support prices hammered by the coronavirus crisis, OPEC and Russian sources said.

However, it is unclear if a figure that lofty includes cuts made for economic decisions by private producers in the United States, Canada and elsewhere, or if OPEC assumes those countries will mandate cuts, which the U.S. has not wanted to do.
Brent futures rose 54 cents, or 1.6%, to $33.38 a barrel by 11:54 a.m. EDT (1554 GMT), while U.S. West Texas Intermediate (WTI) crude rose 64 cents, or 2.6%, to $25.73.

For the week, that put Brent down about 2% and WTI down about 9% on the last day of trade before the long Good Friday weekend.

A cut of 20 million bpd would be by far the biggest output cut ever agreed by OPEC, but Russia has insisted it will only reduce output if the United States joins the deal. U.S. laws prevent coordination among private companies.

Analysts, meanwhile, said that even if such record cuts are agreed, they will not be enough.
"Ultimately, the size of the demand shock is simply too large for a coordinated supply cut," analysts at Goldman Sachs said on Thursday.

Following the OPEC+ meeting, energy ministers from the Group of 20 major economies are set to meet on Friday.
The last OPEC meeting in early March ended acrimoniously, with Russia and Saudi Arabia unable to come to an agreement to curb output as the virus spread, adding to the slump in prices.

A source briefed on Saudi Arabia`s oil policy said it is ready to cut up to 4 million bpd of its production but only from its record output levels of 12.3 million bpd achieved in April.

Russia has said it wants output to be cut from the January-March levels before Saudi production jumped.

Oil importing countries, meanwhile, may announce crude oil purchases, International Energy Agency Executive Director Fatih Birol told al-Arabiya TV.

Analysts questioned how much those purchases could help the current supply glut.

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"Ramping up of crude purchases for SPRs will not help to clear out the nearly 30.0 million bpd of oversupply that we might have in April if OPEC+ countries don`t agree to cut production today," Paola Rodriguez-Masiu, senior oil markets analyst at Rystad Energy, said, noting "Only China and the United states have meaningful spare capacity left."