Oil prices settled sharply higher on Friday, with U.S. prices up by nearly 32% for the week, boosted by hopes the Organization of the Petroleum Exporting Countries and its allies will deliver a production cut and end a devastating price war between Saudi Arabia and Russia.
The support comes as President Donald Trump has “pushed the idea of a grand alliance of oil producers with Russia, Saudi Arabia, and possibly even the U.S. coming together to slash production volumes in order to combat COVID-19 demand losses,” said Robbie Fraser, senior commodity analyst at Schneider Electric.
Still, “while the potential for cuts in the range of 6-10 [million barrels per day]—once unthinkable—isn’t out of the question, some significant obstacles remain,” he said in a daily note.
West Texas Intermediate crude for May delivery /zigman2/quotes/211629951/delayed CL.1 +2.45% rose $3.02, or 11.9%, to settle at $28.34 a barrel after climbing 24.7% Thursday on the New York Mercantile Exchange. For the week, front-month prices were about 31.8% higher—posting the largest one-week percentage rise on record, according to Dow Jones Market Data.
June Brent crude climbed $4.17, or 13.9%, to $34.11 a barrel after a 21% gain on Thursday. It saw a weekly gain of 22%.
Oil surged Thursday, with both front-month benchmarks registering their largest one-day percentage gains on record, after Trump said Saudi Arabia and Russia were set to curb production by 10 million to as much as 15 million barrels, ending a devastating price war that sent the U.S. crude benchmark to an 18-year low last month as oil dropped by more than 60% in the first quarter.
Saudi Arabia, Russia and other major producers were set to debate production cuts of at least 6 million barrels a day in a virtual meeting on Monday, The Wall Street Journal reported .
“The OPEC+ meeting will be open to all producers, not only those in the group. There is still plenty of skepticism as to whether a production cut of 10-15 million barrels per day will be effective at supporting prices,” said Stephen Innes, chief global markets strategist at AxiCorp, in a note to clients.
“This is all bullish for oil from a sentiment perspective and probably averts the worst-case scenario for oil storage being full during Q2 and oil prices falling into the single digits. But with the Q2 oversupply estimated at 20-30mb/d, whatever cuts are agreed will not be sufficient to address the near/medium-term oversupply,” he said.
A report from Bloomberg cited an OPEC delegate who said a cut on the magnitude of 10 million barrels was realistic.
Analysts said a cut on that order would at least slow a flood of unneeded crude that is straining storage infrastructure as demand collapses as a result of the global COVID-19 pandemic.
“Ten million barrels a day seems a target that on one hand seems too large to be credible but on the other would be insufficient to bring the market into balance at least in the near term if demand destruction is 20+ million barrels a day,” said Jason Gammel, analyst at Jefferies. “However, even if it is insufficient for balance, taking oil out of the market will slow the pace of inventory build at an important time.”
Trump said he would also meet with oil-industry chief executives, which The Wall Street Journal reported would happen Friday. “We don’t want to lose our great oil companies,” Trump said.
Perhaps the most obvious obstacle to production cuts is “the premise of U.S. participation, which offers far more complications relative to countries with national oil companies such as Saudi Arabia’s Aramco,” said Fraser. “The U.S. has dozens of major producers and hundreds of smaller independent operators, and it’s unclear if U.S. legal framework would even allow mandated coordination among those producers to support prices.”
Still, U.S. oil production may be headed lower in the weeks ahead, as some data suggest. Baker Hughes /zigman2/quotes/205323712/composite BKR +2.73% on Friday reported that the number of active U.S. rigs drilling for oil dropped by 62 to 562 this week. That followed decline of 40 oil rigs the week before.
Among the products traded on Nymex, May gasoline added 4.4% at 69.16 cents a gallon, with prices for the front-month contract ending nearing 13% higher for the week. May heating oil added 7.6% to $1.0706 a gallon, for a weekly rise of 0.2%.
May natural gas finished at $1.621 per million British thermal units, up nearly 4.5% Friday after marking another settlement at its lowest since 1995 on Thursday. It saw a weekly loss of 2%.
Barbara Kollmeyer in Madrid contributed to this article