Oil Moves Higher With Impact of Possible Output Cuts in Focus
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Oil rose after a two-day drop as investors weighed whether output cuts being discussed by the world’s top producers will be enough to offset the demand destruction wrought by the coronavirus.
Futures in New York climbed around 6% to near $25 a barrel after losing a sixth of their value over the previous two sessions. Saudi Arabia and Russia are hammering out an agreement that a delegate said will reduce global output by around 10 million barrels a day. That compares with OPEC’s estimate for demand to fall by 11.9 million barrels a day this quarter.
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Some form of cooperation from the U.S., the world’s biggest producer, will be required, according to delegates involved in the talks. However, a drop in America’s crude output forecast released Tuesday could be enough to satisfy Riyadh and Moscow. The Energy Information Administration said it expects production to average 11.76 million barrels a day in 2020, down from a previous projection of 12.99 million.
The OPEC+ meeting will be held Thursday afternoon Vienna time, while a G-20 meeting of energy ministers will follow a day later. If a deal can’t be reached or if it fails to stem the rout in oil prices this year, things could get ugly. Almost 40% of U.S. producers face insolvency within the year if crude stays near $30 a barrel, according to a Federal Reserve Bank of Kansas City survey.
“A cut of 10 million barrels per day would be significant and would lend some support to prices,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “However, without U.S. participation, other producers may not have strong incentives to cut output by such an extent.”
West Texas Intermediate for May delivery rose 5.6% to $24.96 a barrel on the New York Mercantile Exchange as of 9:09 a.m. in Singapore. It fell almost 17% over Monday and Tuesday.
Brent for June settlement climbed 2% to $32.52 a barrel on the ICE Futures Europe exchange after dropping 7% in the first two days of the week. The global benchmark traded at a $2.67 premium to WTI for the same month.
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