Oil futures finished with a loss on Thursday, giving up an earlier rally that had lifted U.S. prices by as much as 13%, as investors weighed reports of an OPEC+ output cut deal that some believe won’t be enough to offset losses in demand amid the COVID-19 pandemic’s hit to the economy.
The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to cut production by 10 million barrels a day in May and June, the Wall Street Journal reported . Saudi Arabia and Russia will each limit their production levels to 8.5 million barrels a day, with all members agreeing to cut supply by 23%, Bloomberg reported, citing comments from one delegate.
Reports of details on individual production cuts by country are not clear and OPEC hasn’t officially made an announcement on cuts. Amena Bakr, deputy bureau chief at Energy Intelligence, who was posting live updates on the meeting on her Twitter feed, also tweeted that the group reached a pact to cut 10 million barrels per day for a two-month period.
“The[y] agree to Adjust downwards their overall oil output by 10 mb/d, starting on 1 May 2020, for an initial period of 2 months. For the subsequent period from July to December 2020, an adjustment [of] 8 mb/d followed by 6 mb/d of total for the period of Jan2021 to April 2022,” Bakr tweeted.
A 10 million barrel per day deal is “far lower than what the market needs at the moment,” said Bjørnar Tonhaugen, head of oil markets at Rystad Energy, in emailed commentary.
“If the 10 million bpd cuts deal prevails, now hopes can only rely on what other countries outside the alliance will do,” he said. “Friday might be another day of an exchange of emotions in the market, which may put its hopes on additional non-OPEC+ production cuts to reduce supply, and also on [U.S. Strategic Petroleum Reserve] purchases to boost demand.”
Investors bid the price of crude up on Wednesday in anticipation of a pact between Saudi Arabia and Russia, that would result in daily cuts by OPEC+.
West Texas Intermediate crude for May delivery lost $2.33, or 9.3%, to settle at $22.76 a barrel on the New York Mercantile Exchange after trading as high as $28.36. The contract settled 6.2% higher on Wednesday.
Based on the front-month contract, WTI oil settled down by 19.7% for the week, according to Dow Jones Market Data. Friday is a holiday for the markets.
June Brent crude lost $1.36, or 4.1%, at $31.48 a barrel a barrel on ICE Futures Europe following an intraday peak of $36.40. The front-month international contract was 7.7% lower for the week.
Last week, President Donald Trump tweeted that he expects Saudi Arabia and Russia to cut oil production by 10 million barrels per day to as much as 15 million barrels a day .
An OPEC+ gathering in early March broke down spectacularly after OPEC’s most influential member, Saudi Arabia, and nonmember Russia failed to strike an accord on cuts, leading to an internecine clash that accelerated a crushing move lower in the price of U.S. and international-grade oil.
Year to date, U.S. benchmark WTI oil prices have lost nearly 63%, while global Brent prices were down over 52%.
A decline in oil demand has led to expectations the global storage capacity will soon fill up. Rystad Energy said its analysis shows that total commercial oil storage in the U.S. stands at about 653.4 million barrels, or some 780 million barrels including pipeline fills and crude that is in transit.
The downward drift on prices also has punished U.S. shale oil producers and threatens to decimate debt-laden, oil-and-gas producers if prices aren’t stabilized soon.
“OPEC+ cuts will not raise prices high enough to save shale. The industry is forced to shut-in even its best wells,” independent energy expert Anas Alhajji told MarketWatch. “It is all about the economic impact of coronavirus.”
Data from Baker Hughes /zigman2/quotes/205323712/composite BKR -0.79% on Thursday, which were released a day earlier than usual because of Friday’s holiday, revealed a fourth-straight weekly decline in the number of active U.S. oil-drilling rigs. They fell by 58 to 504 this week.
Back on Nymex, prices for natural gas settled lower after the U.S. Energy Information Administration reported Thursday that domestic supplies of the commodity rose by 38 billion cubic feet for the week ended April 3.
Analysts, on average, expected an increase of 25 billion cubic feet, according to a poll conducted by S&P Global Platts.
May natural gas fell by 5 cents, or 2.8%, to $1.733 per million British thermal units
Meanwhile, May gasoline edged down by 0.1% to 67.73 cents a gallon. May heating oil shed 3.8% to 97.26 cents a gallon.