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April 2, 2020, 3:14 p.m. EDT

Oil rallies, with U.S. prices up nearly 25% as Trump expects Saudi Arabia and Russia to cut production

Market skeptical oil output cuts will happen soon

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By Myra P. Saefong and Barbara Kollmeyer, MarketWatch


Reuters
Photo taken on October 14, 2019 in Riyadh, Saudi Arabia during Russian President Vladimir Putin's visit to that country with Prince Salman Bin Abdelaziz.

Oil futures rallied Thursday, sending U.S. prices up by nearly 25% as President Donald Trump tweeted that he expects Saudi Arabia and Russia to reach an agreement to significantly cut production.

Prices had already been moving higher on prospects for a decline in U.S. crude production after energy exploration and production company Whiting Petroleum Corp. filed for bankruptcy Wednesday and from a report China is building its stockpiles.

Trump tweeted Thursday that he expects a cutback of “approximately 10 Million Barrels, and maybe substantially more.” He later tweeted that it could be as high as 15 million barrels.

“If indeed that Russians and OPEC agree to the cuts of the magnitude indicated, the market imbalance would dry up and support oil prices considerably,” Manish Raj, chief financial officer at Velandera Energy, told MarketWatch. “However, skepticism remains in the market whether the said cuts would actually be made.”

News agency Sputnik reported that Kremlin spokesman Dmitry Peskov refuted Trump’s claim about a phone conversation between Putin and the Saudi crown prince. “No. There was no such conversation,” Peskov said when asked if Putin had a phone conversation with bin Salman, the news agency reported.

Meanwhile, Saudi Arabia's official new agency, the Saudi Press Agency, tweeted the kingdom has called for an “urgent” meeting of the Organization of the Petroleum Exporting Countries and its allies “with the aim of reaching a fair solution to restore a desire[d] balance of the oil markets.”

“All the fine details seem to still be up in the air so President Trump’s tweet might have been premature,” said Edward Moya, senior market analyst at Oanda.

“An oil production cut agreement is likely to be reached quickly, but that might only provide a limited rally as demand devastation will not see any signs of relief for at least a couple more months,” he said in a market update. “WTI crude will likely see sellers defend the $30 a barrel” level.

West Texas Intermediate crude for May delivery /zigman2/quotes/211629951/delayed CL.1 +0.42% rose $5.01, or 24.7%, to settle at $25.32 a barrel after tapping a high of $27.39 on the New York Mercantile Exchange. June Brent crude  climbed $5.20, or 21%, to $29.94 a barrel on ICE Futures Europe.

The WTI and Brent crude benchmarks marked their largest one-day percentage gains on record, based on the front months, according to Dow Jones Market Data.

Oil prices were climbing even before Trump’s tweet, as he had already “commented on the potential for a truce in the coming days in the Russia-Saudi Arabia price/production/market share war in the face of falling demand,” said Colin Cieszynski, chief market strategist at SIA Wealth Management, before Trump’s output-cut tweet.

“I have confidence in both that they’ll be able to work it out,” Trump said Wednesday at a White House press briefing, of the price spat between Russia and Saudi Arabia.

He said he will also meet with oil-industry chief executives, which The Wall Street Journal reported will happen Friday. “We don’t want to lose our great oil companies,” he said.

“Investors may also keep an eye on the potential for lower U.S. production in [the] future after Whiting Petroleum became the first U.S. shale producer to file for bankruptcy protection,” Cieszynski said in a daily note.

On Thursday, Texas Railroad Commissioner Ryan Sitton tweeted that he spoke with Russian energy minister Alexander Novak and said they both agreed that the COVID19 pandemic requires an unprecedented level of international cooperation and “Discussed 10mbpd out of global supply.”

The first quarter has been punishing for financial markets, with oil especially hit by a Russia-Saudi price war that is flooding the market with supply and demand destruction tied to the coronavirus outbreak.

The U.S. oil benchmark lost 66.5% in the first quarter and global benchmark Brent slid 65.6% for the quarter—the largest quarterly percentage declines on record.

Bloomberg News separately reported China is taking advantage of low prices to build its reserves. The report said China may be buying an additional 100 million barrels over the course of the year .

Meanwhile, the Energy Information Administration reported Wednesday that U.S. crude supplies rose by 13.8 million barrels for the week ended March 27, marking a 10th straight weekly increase. Analysts polled by S&P Global Platts expected the data to show a rise of 4.6 million barrels.

The EIA report also showed that supplies of gasoline rose by 7.5 million barrels for the week, as demand for the fuel dropped roughly 25% from a week earlier to about 6.7 million barrels.

On Thursday, however, gasoline futures followed oil higher, with the May contract up 21.3% at 66.28 cents a gallon. May heating oil  added 6.7% to 99.51 cents a gallon after settling Wednesday at the lowest for a front-month contract since early 2016.

May natural gas  settled at $1.552 per million British thermal units, down 2.2%, to mark another finish at the lowest since 1995.

Read: Natural-gas futures touch their lowest level in 25 years, but still outperform oil

The EIA reported Thursday that domestic supplies of natural gas fell by 19 billion cubic feet for the week ended March 27. Analysts, on average, expected a decline of 25 billion cubic feet, according to a poll conducted by S&P Global Platts.

/zigman2/quotes/211629951/delayed
US : U.S.: Nymex
$ 40.27
+0.17 +0.42%
Volume: 381,643
July 14, 2020 3:49p
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Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong. Barbara Kollmeyer is an editor for MarketWatch in Madrid. Follow her on Twitter @bkollmeyer.

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