Oil prices slip on demand worries, prospect of Libyan supply return

CNBC

Reuters
KEY POINTS
  • Oil prices fell on Tuesday as optimism for a straightforward recovery in fuel demand faded and a looming increase in supply weighed on the market.
  • Investors are watching to see whether Libya, which can produce about 1% of global oil supply, is able to resume exports, blockaded since January amid a civil war.
  • U.S. West Texas Intermediate (WTI) crude futures traded down  26 cents, or 0.7%, at $39.44 a barrel, having jumped 3% in the previous day.
  • Brent crude futures for September fell 17 cents, or 0.2%, to $41.68 a barrel, paring Monday’s 92-cent gain.

Oil prices fell on Tuesday as optimism for a straightforward recovery in fuel demand faded and a looming increase in supply weighed on the market, with Libya’s state oil company flagging progress on talks to resume exports.

U.S. West Texas Intermediate (WTI) crude futures fell as much as 44 cents, but recovered slightly after stronger-than-expected Chinese factory data.

By 0201 GMT they were trading down 26 cents, or 0.7%, at $39.44 a barrel, having jumped 3% on Monday.

Brent crude futures for September fell 17 cents, or 0.2%, to $41.68 a barrel, paring Monday’s 92-cent gain. The less active August contract, which expires on Tuesday, fell 25 cents after gaining 69 cents on Monday.

Optimism on Monday had been based on strong growth in U.S. pending home sales, bolstering belief that global fuel demand is rising steadily as major economies reopen after coronavirus lockdowns.

But at the same time, coronavirus cases continue to rise in southern and southwestern U.S. states.

“It’s really difficult to say that demand is a one-way street. There are still plenty of risks going both ways,” said Vivek Dhar, mining and energy commodities analyst at Commonwealth Bank of Australia.

Bulls will be looking for more signs of a demand recovery in data due on Tuesday from the American Petroleum Institute industry group, and from the U.S. government on Wednesday.

A preliminary Reuters poll showed analysts expect U.S. crude oil stockpiles fell from record highs last week and gasoline inventories decreased for a third straight week.

On the supply side, investors are watching to see whether Libya, which can produce about 1% of global oil supply, is able to resume exports, blockaded since January amid a civil war.

Libya’s National Oil Corp (NOC) said on Monday it was making progress on talks with neighboring countries to lift the blockade.

Oil falls, June WTI leads losses on storage fears

CNBC

Reuters
KEY POINTS
  • U.S. West Texas Intermediate June futures fell $1.49, or 8.8%, to $15.45 a barrel by 0452 GMT.
  • Brent crude was down 44 cents, or 2.1%, at $21.00 a barrel.
GP: oil derrick
Pump jacks operate near Loco Hills on April 23, 2020 in Eddy County, New Mexico.
Paul Ratje | Getty Images

Oil prices fell on Monday on signs that worldwide oil storage is filling rapidly, raising concerns that production cuts will not be fast enough to fully offset the collapse in demand from the coronavirus pandemic.

U.S. oil futures led losses on fears that storage at Cushing, Oklahoma, could reach full capacity soon. U.S. crude inventories rose to 518.6 million barrels in the week to April 17, near an all-time record of 535 million barrels set in 2017.

U.S. West Texas Intermediate June futures fell $1.49, or 8.8%, to $15.45 a barrel by 0452 GMT, while Brent crude was down 44 cents, or 2.1%, at $21.00 a barrel.

Oil futures marked their third straight week of losses last week — and have fallen for eight of the past nine — with Brent ending down 24% and WTI off around 7%.

Retail investors were caught off guard last week when the May WTI contract plunged into negative territory for the first time ever two days before expiry as financial traders scrambled to avoid having to take delivery of oil.

The June WTI contract’s price fall may have been triggered by investors moving to later months to avoid a similar fate, said Tony Nunan, a senior risk manager at Mitsubishi Corp in Tokyo.

“Anybody who has had length who doesn’t have storage contracts has either closed their positions (in June) or rolled far forward … because it’s suicide to carry a position into the close after seeing what happened last month,” he said.

Cushing, the delivery point for WTI, was 70% full as of mid-April, although traders said all available space was already leased.

Producers may not be slashing output quickly or deeply enough to buoy prices, especially when global economic output is expected to contract by 2% this year, worse than the financial crisis, while demand has collapsed 30% due to the pandemic.

Amid the rush to cut output, rig counts in the United States are down to the lowest since July 2016, while the total number of oil and gas rigs in Canada has fallen to the lowest since at least 2000, according to Baker Hughes data.

“The Permian Basin and New Mexico accounted for 62% of the shutdowns; an ominous sign considering this region has been one of the more prosperous in the U.S.,” ANZ analysts said.

Kuwait and Azerbaijan are coordinating cuts, while Russia is set to reduce its western seaborne exports by half in May.

The Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, pledged earlier this month to cut output by an unprecedented 9.7 million barrels per day in May and June.

OPEC and allies agree to historic 10 million barrel per day production cut

A historic production cut agreement between OPEC and its allies, known as OPEC+, hit a roadblock after Mexico refused to agree to its share of the cuts after a marathon meeting between the oil-producing nations that lasted more than nine hours.

The other members of OPEC+, led by Saudi Arabia and Russia, earlier in the day agreed to cuts that would take 10 million barrels per day offline as the coronavirus pandemic saps demand for crude.

A statement released by OPEC following the meeting outlined details of the cuts but notes the measures were “agreed by all the OPEC and non-OPEC oil producing countries participating in the Declaration of Cooperation, with the exception of Mexico, and as a result, the agreement is conditional on the consent of Mexico.”

The extraordinary meeting kicked off around 10:30 a.m. ET and stretched into the evening.

Following the meeting, Mexico’s Secretary of Energy Rocío Nahle said in a tweet that the country would be willing to cut production by 100,000 barrels per day for the next two months. OPEC+ had reportedly asked for a cut of 400,000 barrels per day, according to Reuters.

OPEC said in a statement that the initial 10 million barrels per day cut would last in May and June, before tapering to 8 million barrels per day for the rest of the year. Beginning in January 2021, the cuts would decrease to 6 million barrels per day, which would continue through April 2022, according to the statement.

The agreement was not contingent on nations outside of OPEC+ curbing production, which some had suggested might be a stipulation for Saudi Arabia and Russia to scale back production. The group did, however, call on other major producers to cut production in a further bid to prop up prices.

Despite the record size of the potential cut, oil prices moved lower on Thursday as investors feared it would still not be enough to combat the unprecedented demand loss from the coronavirus.

“Although 10 million bpd will help the market on the short term to not fill up storage, it is a disappointing development for many, who still realize the size of the oil oversupply,” said Rystad Energy’s head of oil markets Bjornar Tonhaugen.

U.S. West Texas Intermediate fell 9.29%, or $2.33, to settle at $22.76 per barrel. Earlier in the session, the contract had been up more than 12% trade at a session high of $28.36. International benchmark Brent crude slipped 4.14% to settle at $31.48, after earlier hitting a high of $36.40.

“Covid-19 is an unseen beast that seems to be impacting everything in its path,” OPEC Secretary General Mohammad Barkindo said at the meeting. “For the oil market, it has completely up-ended market supply and demand fundamentals since we last met on 6 March,” he added.

Earlier WTI spiked more than 12% on reports that Saudi Arabia and Russia were discussing cuts that could have taken 20 million barrels per day of global production offline.

“The market has been underwhelmed by the proposed 10m/bd production cut, perhaps because of early expectations of a massive 20m/bd reduction,” said Helima Croft, RBC’s global head of commodities research. “However we contend that it is crucial to turn off the tap off the tap in the midst of colossal demand crash and bring the price war to a swift conclusion,” she added.

Ahead of the meeting, the Street had been watching for cuts in the 10 million to 15 million barrels per day range after Trump said he had spoken to Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman and expected them to announce a deal of that size.

CH 20200409_wti_one_day.png

“We’re optimistic that they’ll reach an agreement between the Saudis and Russians in an effort to stabilize the markets,” U.S. Energy Secretary Dan Brouillette said Thursday on CNBC’s “Squawk Box” before the OPEC+ meeting kicked off. “I think they can easily get to 10 million, perhaps even higher, and certainly higher if you include the other nations who produce oil, nations like Canada and Brazil and others. Easily, easily done,” he added.

Energy ministers from the Group of 20 major economies will convene for their own extraordinary meeting on Friday, in which Energy Secretary Dan Brouillette will participate.

The G-20 presidency said Tuesday that the meeting would be held “to foster global dialogue and cooperation to ensure stable energy markets and enable a stronger global economy.”

When it comes to U.S. energy companies, Trump has commented that market forces will prevail, and on Wednesday said that producers have “already cut way back.” Brouillette echoed this on Thursday, telling CNBC that the “demand downturn has led to production cuts in the United States of about 2 million barrels per day thought the reminder of 2020.”

Oil prices crater

At OPEC’s last meeting in early March, de facto leader Saudi Arabia proposed cuts of 1.5 million barrels per day to combat falling demand. But OPEC-ally Russia rejected the proposal, sparking a price war between the two powerhouse producers. Saudi Arabia slashed its oil prices to gain market share, and also ramped up production to record levels above 12 million barrels per day.

Since early March, the outlook for oil has changed drastically as the pandemic spread, with much of the world now staying home. Oil prices sank to their lowest level in nearly two decades. WTI and Brent both fell more than 50% in March for their worst month on record. The first quarter was also the worst in history, with WTI shedding 66%, while Brent fell 65%.

Amid the decline, which has pressured highly-leveraged U.S. oil companies, Trump sought to broker a deal between Saudi Arabia and Russia. On April 2 Trump told CNBC that he had spoken to Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman and that he expected them to announce a record production cut.

American drillers are still pumping near record levels as the world is coming to the edge of its ability to store oil. The U.S. oil industry is divided on whether it could or should contribute to production cuts in an effort to stabilize prices.

The American Petroleum Industry opposes cuts, saying such a move would harm the U.S. industry. In Texas, however, Ryan Sitton, one of the three members of the Texas Railroad Commission, has said that the state would consider participating in such a deal.

— CNBC’s Christine Wang, Ted Kemp, Sam Meredith and Nate Rattner contributed reporting.

Oil jumps more than 6% following worst day since 1991

CNBC

International benchmark Brent crude futures rose 7.13% to $36.81 per barrel while U.S. West Texas Intermediate futures jumped 6.55% to $33.17 per barrel.

The moves came following a tumble in oil prices in the previous trading session. WTI and Brent dropped 24.59% and 24.1%, respectively, sinking to more than 4-year lows.

The steep sell-off came amid escalating tensions between Saudi Arabia and Russia, which traders fear could lead to an excess supply of crude.

On Friday, OPEC ally Russia rejected the additional 1.5 million barrel per day production cut that the 14-member cartel proposed. After the unsuccessful talks concluded, OPEC’s de facto leader Saudi Arabia on Saturday slashed its official oil prices as it reportedly gets set to ramp up production.

The current production cuts expire at the end of March, which means that beginning April 1 nations can pump as much oil as they want.

This potential supply glut comes at a time when prices were already suppressed thanks to the coronavirus outbreak. A slowdown in travel has already hit demand, and a global economic slowdown could depress oil further.

On Monday the U.S. Department of Energy said the Trump administration is monitoring the situation following oil’s steep slide.

“These attempts by state actors to manipulate and shock oil markets reinforce the importance of the role of the United States as a reliable energy supplier to partners and allies around the world. The United States, as the world’s largest producer of oil and gas, can and will withstand this volatility. The growth of the unconventional oil and gas industry in the United States has led to a more secure, resilient and flexible market,” the statement said.

— CNBC’s Eustance Huang contributed to this report.

Oil clambers higher as OPEC, allies move closer to deeper output cuts

CNBC

Reuters
KEY POINTS
  • Brent crude rose by 78 cents, or 1.50%, to $52.64 a barrel at 0502 GMT, after settling down 4 cents in the previous session.
  • U.S. West Texas Intermediate (WTI) futures rose by 72 cents, or 1.53%, to $47.90 a barrel, up for a third session.
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 jumped 1.5% on Wednesday on hopes that major producers have made progress towards sealing an agreement to implement deeper output cuts aimed at offsetting the slump in demand caused by the global coronavirus outbreak.

Brent crude rose by 78 cents, or 1.50%, to $52.64 a barrel at 0502 GMT, after settling down 4 cents in the previous session. U.S. West Texas Intermediate (WTI) futures rose by 72 cents, or 1.53%, to $47.90 a barrel, up for a third session.

A panel of the Organization of Petroleum Exporting Countries (OPEC) and its allies, a grouping known as OPEC+, recommended cutting oil output by an extra 1 million barrels per day (bpd) on Tuesday. The recommendation may mean that Russia and Saudi Arabia, the two biggest producers in the OPEC+ group, are close to a deal to support prices.

That would be in addition to 2.1 million bpd in current output cuts that include a 1.7 million bpd in curbs by OPEC+ and other voluntary reductions by Saudi Arabia, the world’s biggest exporter. The group is set to meet formally in Vienna on March 5-6.

“This is no time for caution for OPEC+. Second-quarter oversupply needed some heavy lifting from the group to offset even before the COVID-19 (coronavirus disease) outbreak, but now it is a must,” Barclays analysts said in a research note.

Brent and WTI have each fallen about 27% from their 2020-peak reached in January.

The expected 1 million bpd additional cut by OPEC+ would still fall well short of the newly increased 2.1 million bpd expected global demand loss in the first half alone, Goldman Sachs analysts wrote in a research note.

U.S. crude oil inventories rose in the most recent week, while gasoline and distillate stocks fell, data from industry group the American Petroleum Institute showed on Tuesday.

Crude inventories rose by 1.7 million barrels in the week to Feb. 28 to 446.6 million barrels, compared with analysts’ expectations for a build of 2.6 million barrels.

Goldman has again cut its Brent price forecast to $45 a barrel in April, while expecting Brent gradually recovering to $60 a barrel by year-end.

Morgan Stanley on Tuesday also cut its second-quarter 2020 Brent price forecast to $55 per barrel and its WTI outlook to $50 on expectations that China’s 2020 oil demand growth would be close to zero and that demand elsewhere may weaken because of the virus.

Elsewhere, the U.S. Federal Reserve cut interest rates on Tuesday in a bid to shield the world’s largest economy from the impact of the coronavirus.

″(The) Fed’s emergency rate cut underscores fragility of economic fundamentals, and this urges OPEC+ to expedite a deeper output cut to shore up energy prices,” said Margaret Yang, market analyst at CMC Markets.

Yang said from a technical analysis perspective, Brent has found strong support at around $50-52, while immediate resistance can be found at $54.70.