Oil rises on bargain-hunting, hopes for stockpile purchases

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Reuters

KEY POINTS
  • Brent futures were up 38 cents, or 1.3%, at $29.98 a barrel as of 0201 GMT, after falling 6.7% on Tuesday.
  • U.S. West Texas Intermediate crude rose 36 cents, or 1.8%, at $20.47, having crashed 10.3% in the previous session.
GP: Oil storage 200403 Asia
Oil storage tanks stand at the RN-Tuapsinsky refinery, operated by Rosneft Oil Co., in Tuapse, Russia, on Monday, March 23, 2020.
Andrey Rudakov | Bloomberg | Getty Images

Oil prices rose on Wednesday as investors looked for bargains after the previous session’s slump and on hopes that consuming countries will look to fill their strategic reserves, although oversupply fears and warnings of a deep recession capped gains.

Brent futures were up 38 cents, or 1.3%, at $29.98 a barrel as of 0201 GMT, after falling 6.7% on Tuesday.

U.S. West Texas Intermediate crude rose 36 cents, or 1.8%, at $20.47, having crashed 10.3% in the previous session.

Both benchmarks were undercut by worries that a record global output cut by producers would not offset plunging fuel demand due to efforts to contain the coronavirus pandemic.

“Investors unwound short positions, after confirming a rise in U.S. crude oil stocks,” said Kazuhiko Saito, chief analyst at Fujitomi.

Before the report on U.S. inventories, “they had sold aggressively with expectations for such a build,” Saito said.

U.S. crude oil, gasoline and distillate stocks all rose sharply last week, data from industry group the American Petroleum Institute showed on Tuesday.

Crude inventories rose by 13.1 million barrels in the week ended on April 10 to 486.9 million barrels, more than analyst expectations for a build of 11.7 million barrels.

Hopes for massive purchasing by consuming countries for their strategic stockpiles also lent support.

Officials and sources from the Organization of the Petroleum Exporting Countries and its Russia-led allies — a grouping known as OPEC+ — have indicated that the International Energy Agency (IEA), energy watchdog for the world’s most industrialized nations, may announce purchases of up to several million barrels to buoy the record OPEC+ output cut.

The U.S. Energy Department said on Tuesday it is negotiating with nine energy companies to store about 23 million barrels of domestic oil in its Strategic Petroleum Reserve (SPR).

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said on Monday that oil purchases into countries SPRs would reach 200 million barrels over the next couple of months, citing the IEA.

Warnings of a deep recession by the International Monetary Fund (IMF), however, weighed on investor sentiment.

The global economy is expected to shrink by 3.0% during 2020 in a stunning coronavirus-driven collapse of activity that will mark the steepest downturn since the Great Depression of the 1930s, the IMF said on Tuesday.

Brent crude could plunge to ‘single-digit lows’ if OPEC+ can’t agree on output cuts, says Fitch

KEY POINTS
  • Brent crude futures could plunge to “single-digit lows” if major oil producers fail to reach a deal to cut output, Fitch Solutions said in a Friday report.
  • OPEC and its allies, also known as OPEC+, are expected to meet on Thursday — a delay from Monday — in an attempt to agree on production cuts.
  • Other analysts said even if major producers — including those in the U.S. — could agree to reduce output, oil prices are likely to stay low as the coronavirus pandemic is keeping a lid on demand.
GP: Coronavirus OPEC OPEC+
Red Cross medics measure the temperature of participants of the 178th Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on March 5, 2020.
Alex Halada | Getty Images

Brent crude futures could plunge to “single-digit lows” if major oil producers fail to reach a deal to cut output at a time when demand has collapsed due to the coronavirus pandemic, Fitch Solutions said in a Friday report.

The Organization of the Petroleum Exporting Countries and its allies are expected to meet on Thursday — a delay from Monday — in an attempt to agree on production cuts. A previous deal by the group — commonly known as OPEC+ — expired in March after Saudi Arabia and Russia failed to reach an agreement. The fallout sent oil prices plummeting to multi-year lows.

The expiry of the deal means that producers are free to increase output this month, with Saudi Arabia, United Arab Emirates and Russia among those saying that they would do so.

Chart: OPEC cuts 200401 Asia
Analysts from Fitch Solutions said a fall in demand and an increase in supply could result in more than 20 million barrel per day of excess oil. That would put the oil market under “extreme physical pressure,” they wrote in the report published before the OPEC+ meeting was postponed.

“While it is unlikely that nominal storage capacity will be breached, it is possible that the sheer scale of the oversupply will overwhelm global logistics chains, plunging Brent into single-digit lows,” the analysts added.

Oil futures have fallen by roughly 50% since the start of the year. On Monday, however, oil prices trimmed earlier losses after Kirill Dmitriev, the chief executive of Russia’s sovereign wealth fund, told CNBC on Monday that Moscow and Riyadh were “very close” to a deal.

Brent crude fell by around 1.7% to $33.53 a barrel, while the U.S. West Taxes Intermediate crude dipped by 2% to around $27.72 a barrel.

“I think the whole market understands that this deal is important and it will bring lots of stability, so much important stability to the market, and we are very close,” said Dmitriev, CEO of the Russian Direct Investment Fund.

Oil prices to stay low

Some analysts said U.S. participation in any production cuts could improve the prospects of a deal, but the possibility of getting U.S. producers on board is low.

Thom Payne, director of consultancy Westwood Global Energy Group, said the U.S. oil industry is “fragmented.”

“So, trying to get an equitable position where they can all cut, that’s going to be very, very difficult,” he told CNBC’s “Street Signs Asia” on Monday.

Others said even if major producers — including those in the U.S. — could agree to reduce output, oil prices are likely to stay low as the coronavirus pandemic is keeping a lid on demand.

Matt Smith, director of commodity research at analytics firm ClipperData, noted that many countries are in lockdown mode as authorities seek to curb the virus spread.

“Even if we do get some type of supply cut deal, it’s a demand side issue as well,” he told CNBC’s “Squawk Box Asia” on Monday.

“Regardless of what we cut from the supply perspective, you’re going to be pushing on a string because you’re never going to be able to move enough oil off the market right now or next month to help balance things out here,” he added.

Oil prices fall as US inventory build-up heightens oversupply concerns

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Reuters
KEY POINTS
  • As of 0345 GMT, Brent crude was down by 47 cents, or 1.8%, at $25.88 a barrel.
  • U.S. West Texas Intermediate crude was up 12 cents, or 0.6%, at $20.6 a barrel, an uptick analysts said was driven by position building at the start of a the new quarter.
GP: Oil production as sun sets
Oil production in Azerbaijan
Vostok

Global crude oil prices slid further on Wednesday, following their biggest-ever quarterly and monthly losses, as a bigger-than-expected rise in U.S. inventories and a widening rift within OPEC heightened oversupply fears.

Oil prices are near their lowest since 2002 amid the global coronavirus crisis that has brought a worldwide economic slowdown and slashed oil demand.

Crude futures ended the quarter down nearly 70% after record losses in March.

As of 0345 GMT, Brent crude was down by 47 cents, or 1.8%, at $25.88 a barrel. U.S. West Texas Intermediate crude was up 12 cents, or 0.6%, at $20.6 a barrel, an uptick analysts said was driven by position building at the start of a the new quarter.

U.S. crude inventories rose by 10.5 million barrels last week, far exceeding forecasts for a 4 million barrel build-up, data from industry group the American Petroleum Institute showed.

“The market sentiment remains bleak as there is no clarity on how long the pandemic will continue,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

Nearly 800,000 people have been infected across the world and more than 38,800 have died, according to a Reuters tally.

The bearish mood in the market wasn’t improved by a rift within the Organization of the Petroleum Exporting Countries (OPEC). Saudi Arabia and other members of OPEC were unable to come to an agreement on Tuesday to meet in April to discuss sliding prices.

“It is very unlikely that OPEC, with or without Russia or the United States, will agree a sufficient volumetric solution to offset oil demand losses,” BNP Paribas analyst Harry Tchilinguirian said in a report issued on Tuesday.

Adding to the downward pressure, sources told Reuters that top U.S. officials have for now put aside a proposal for an alliance with Saudi Arabia to manage the global oil market.

The Trump administration plans to lease out space for energy companies to store oil in the nation’s Strategic Petroleum Reserve, after a previous effort to buy millions of barrels for the emergency stockpile was cancelled over a lack of funding.

A Reuters survey of 40 analysts forecast Brent would average $38.76 a barrel in 2020, 36% lower than the $60.63 forecast in a February survey.

Oil prices plunge more than 26% after OPEC deal failure sparks price war

GP: Oil rig 180102
Oil pumpjacks in silhouette at sunset.
Oil prices plunged after OPEC’s failure to strike a deal with its allies regarding production cuts caused Saudi Arabia to slash its prices as it reportedly gets set to ramp up production, leading to fears of an all-out price war.

U.S. West Texas Intermediate crude dropped 27.62% to $29.88 per barrel as of 06:33 GMT Monday, having earlier tumbled to a low of $27.34 per barrel. International benchmark Brent crude futures also plummeted 26.4% to $33.32 per barrel. Brent futures were down more than 30% at their lows.

“This has turned into a scorched Earth approach by Saudi Arabia, in particular, to deal with the problem of chronic overproduction,” Again Capital’s John Kilduff said. “The Saudis are the lowest cost producer by far. There is a reckoning ahead for all other producers, especially those companies operating in the U.S shale patch.”

On Saturday, Saudi Arabia announced massive discounts to its official selling prices for April, and the nation is reportedly preparing to increase its production above the 10 million barrel per day mark, according to a Reuters report. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.

“We believe the OPEC and Russia oil price war unequivocally started this weekend when Saudi Arabia aggressively cut the relative price at which it sells its crude by the most in at least 20 years,” Goldman Sachs analyst Damien Courvalin said in a note to clients Sunday. “The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” the firm added.

Goldman cut its second and third quarter Brent forecast to $30 per barrel, and said that prices could dip into the $20s.

Saudi Arabia’s price cut followed a breakdown of talks in Vienna last week. On Thursday, OPEC recommended additional production cuts of 1.5 million barrels per day starting in April and extending until the end of the year. But OPEC ally Russia rejected the additional cuts when the 14-member cartel and its allies, known as OPEC+, met on Friday.

The meeting also concluded with no directive about the production cuts that are currently in place but set to expire at the end of the month. This effectively means that nations will soon have free rein over how much they pump.

“As from 1 April we are starting to work without minding the quotas or reductions which were in place earlier,” Russian Energy Minister Alexander Novak told reporters Friday at the OPEC+ meeting in Vienna, adding, “but this does not mean that each country would not monitor and analyze market developments.”

Oil prices have already moved sharply lower this year as the coronavirus outbreak has led to softer demand for crude. A potential supply glut could pressure prices further.

“Both events – coronavirus and OPEC+ falling apart were not expected or priced into the market a month ago,” said Rebecca Babin, senior equity trader for CIBC Private Wealth Management. She said the key things to watch going forward are whether or not Saudi Arabia and Russia reach a “Hail Mary” deal, and if not, how quickly U.S. supply is shut in to support prices.

“There is still significant uncertainty, but the commodity market is not waiting around to find out if miracles can happen,” she added.

The unfolding of events is reminiscent of 2014 when Saudi Arabia, Russia and the U.S. competed for market share in the oil industry. As production escalated, prices plummeted. Some see prices heading back to those lows.

″$20 oil in 2020 is coming,” Ali Khedery, formerly Exxon’s senior Middle East advisor and now CEO of U.S.-based strategy firm Dragoman Ventures, wrote Sunday on Twitter. “Huge geopolitical implications. Timely stimulus for net consumers. Catastrophic for failed/failing petro-kleptocracies Iraq, Iran, etc – may prove existential 1-2 punch when paired with COVID19.”

But others, including Eurasia Group, believe that Saudi Arabia and Russia will eventually come to an agreement.

“The most likely outcome of the failure of the Vienna talks is a limited oil price war before the two sides agree on a new deal,” analysts led by Ayham Kamel said in a note to clients Sunday. The firm puts the chances of an eventual agreement at 60%.

Vital Knowledge founder Adam Crisafulli said Sunday that oil “has become a bigger problem for markets than the coronavirus,” but also said that he does not foresee prices falling to the Jan. 2016 lows.

“Saudi Arabia can’t tolerate an oil depression – the country’s fiscal breakeven oil prices remains very high, Saudi Aramco is now a public company, and MBS’s grip on power isn’t yet absolute. As a result, the [government] won’t be so cavalier in sending oil back into the $30s (or even lower),” he said in a note to clients Sunday.

— CNBC’s Michael Bloom and Natasha Turak contributed reporting.

Oil comes off lows as hopes of OPEC cut, stimulus counter virus gloom

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Reuters
KEY POINTS
  • Brent crude was at $51.31 a barrel, up $1.64 or 3.3%, by 0502 GMT, off $48.40, the lowest since July 2017.
  • Across the Atlantic, U.S. West Texas Intermediate crude hit a 14-month low of $43.32, before recovering to $46.11, up $1.35, or 3%.
GP: Oil production facilities 200205 ASIA
A kayaker passes in front of an offshore oil platform in the Guanabara Bay in Niteroi, Brazil, Saturday, Feb. 1, 2020.
Dado Galdieri | Bloomberg | Getty Images

Oil prices rebounded more than $1 a barrel after earlier hitting multi-year lows on Monday, as hopes of a deeper cut in output by OPEC and stimulus from central banks countered worries about damage to demand from the coronavirus outbreak.

Brent crude was at $51.31 a barrel, up $1.64 or 3.3%, by 0502 GMT, off $48.40, the lowest since July 2017.

Across the Atlantic, U.S. West Texas Intermediate crude hit a 14-month low of $43.32, before recovering to $46.11, up $1.35, or 3%.

Both marked their first gain after six sessions of losses amid virus worries. The coronavirus, which originated in China, has killed nearly 3,000 and roiled global markets as investors brace for a steep knock to world growth. Equities marked their biggest rout since the 2008 financial crisis last week.

Dragging on oil prices earlier in the day was data unveiled over the weekend by China, the world’s top energy consumer.

Factory activity in the country shrank at the fastest pace ever in February, underscoring the colossal damage from the outbreak on its economy.

“On the one hand, it’s pretty negative on worldwide crude oil and product demand,” said Lachlan Shaw, head of commodity research at the National Australia Bank.

But then there is news Saudi Arabia is pushing for a million barrels per day cut to be agreed this week, while central banks are increasingly signalling an appetite to intervene and support markets by cutting interest rates, he said.

“So it’s a balance and it’s going to be pretty volatile.”

Several key members of the Organization of the Petroleum Exporting Countries (OPEC) are mulling the additional production cut in the second quarter amid fears the virus outbreak will erode oil demand. The previous proposal was for an additional output cut of 600,000 bpd.

Oil prices are down more than 20% since the start of the year despite OPEC and its allies including Russia, a grouping known as OPEC+, curbing oil output by 1.7 million bpd under a deal that runs to the end of March.

“Inaction by OPEC+ would likely trigger another potentially severe bout of selling,” analysts at Fitch Solutions have said.

Also, current prices would incentivize Russia to agree to further output cuts although “any cut will likely be of a short duration, for example, three months, with the barrels brought immediately back to market thereafter,” Fitch analysts said.