Oil futures gave up earlier gains on Tuesday to settle lower, pressured after a U.S. government report lowered its U.S. and global benchmark price forecasts and outlook for domestic production for this year and next.
Traders also weighed prospects for a global output cut when major producers hold a virtual meeting later this week.
The outlook for prices looked more bearish after the U.S. Energy Information Administration lowered its 2020 forecast for West Texas Intermediate and Brent crude oil prices, according to the Short-Term Energy Outlook report released Tuesday. The government agency also cut its expectations for 2020 U.S. crude-oil production by 9.5% to 11.76 million barrels a day—less than some may have expected.
Oil prices gave up their gains after the EIA only cut its 2020 U.S. oil production forecast by 1.2 million barrels a day, “suggesting U.S. output will still contribute to an oversupplied market,” Edward Moya, senior market analyst at Oanda, told MarketWatch. “Expectations were growing that U.S. production could drop by 20% in the short term—for that to happen the EIA would need to cut the forecast by another million barrels.”
Against that backdrop, West Texas Intermediate crude for May delivery /zigman2/quotes/209724760/delayed CLK20 +2.79% fell by $2.45, or 9.4%, to settle at $23.63 a barrel on the New York Mercantile Exchange. June Brent crude /zigman2/quotes/209705351/delayed UK:BRNM20 +0.03% , meanwhile, lost $1.18, or 3.6%, to $31.87 a barrel on ICE Futures Europe.
Meanwhile, investors continue to anticipate a production deal between the Organization of the Petroleum Exporting Countries and the group’s allies, including Russia, “possibly as soon as Thursday,” said Colin Cieszynski, chief market strategist at SIA Wealth Management, in a daily note. “There have been rumblings about the U.S. potentially getting involved in a deal, but regardless of whether the country officially signs on or not, U.S. companies may be forced to deal with low prices by cutting production on their own.”
News reports said Saudi Arabia and Russia were making progress toward an agreement that would curb production, ending a price war that has flooded the world with unneeded crude and filled storage tanks even as demand evaporated as major economies shut down in an effort to contain the COVID-19 pandemic. Major oil producers are scheduled to hold a virtual meeting on Thursday.
Reuters reported Tuesday that OPEC+ will only agree to deep output cuts if the U.S. and others joint in with the output curbs, while the U.S. Energy Department said in a statement that domestic output was already falling without government action.
President Donald Trump, asked at his Monday news briefing if he would take steps to cut U.S. oil output as part of a global effort to curb production, said he hadn’t received such a request.
“I think its automatic because they [U.S. producers] are already cutting back,” he said and added “If they [Saudi and Russia] ask me, I’ll make a decision.”
OPEC members Saudi Arabia, the United Arab Emirates and Kuwait ramped up their crude production after talks with Russia over a new supply deal broke down early last month, according to a survey conducted by S&P Global Platts.
The three Gulf countries contributed to OPEC pumping at a three-month high of 28.97 million barrels per day in March, the survey showed. Compliance among the 10 OPEC members with quotas, which expired at the end of March, “collapsed” to 13% from 120% in February, S&P Global Platts said.
Back on Nymex, May gasoline /zigman2/quotes/210287184/delayed RBK20 -0.39% shed 7.6% to 64.82 cents a gallon and May heating oil /zigman2/quotes/210063713/delayed HOK20 +0.10% lost 1.7% to $1.0275 a gallon.
The American Petroleum Institute will release its data on U.S. petroleum supplies late Tuesday, with the Energy Information Administration’s government tally due out early Wednesday. On average, analysts polled by S&P Global Platts expect the EIA to report a rise in crude stockpiles of 8.4 million barrels for the week ended April 3.
Gasoline stocks are forecast to climb by 5.4 million barrels, while distillate inventories are seen down by 500,000 barrels, the survey showed.
Meanwhile, May natural gas /zigman2/quotes/210190516/delayed NGK20 +0.76% settled at $1.852 per million British thermal units, up 7%.
Low oil prices are expected to slow the production of oil, as well as the natural gas associated with that production. “The impact of low oil prices could result in a drop of 8-10 billion cubic feet per day in associated gas volumes by the end of 2021,” according to a report from IHS Markit released on Tuesday.