(Bloomberg) -- Oil posted its first gain of the week just before the world’s top producers meet to discuss potential output cuts against of backdrop of demand destruction from the coronavirus.
Futures in New York rose 6.2% on Wednesday after a volatile session that saw prices rise as much as 12%. Oil is drawing support from investors who are focused on plans being ironed out by Saudi Arabia and Russia for a global supply-curb agreement at the OPEC+ emergency virtual meeting on Thursday. Russia earlier said it is ready to cut oil production by 1.6 million barrels a day, or 14% of its output.
“Fundamentals are the driving force in this market, whether it be the demand or supply-side,” said Peter McGinn, market strategist at RJ O’Brien & Associates LLC in Chicago. While the OPEC+ production cuts are welcome, the real question is when will demand return, he added.
Oil gained even after the Energy Information Administration reported a 15.2 million barrel weekly increase in crude stocks, biggest gain in data going back to 1982.
Any sort of supply reduction may not be large enough to offset the massive near-term demand destruction, said Bart Melek, director and head of global commodity strategy at TD Securities. “We doubt that OPEC+ can cut sufficient amount, without other key producers committing to reductions as well.”
Prices:
- West Texas Intermediate settled $1.46 higher at $25.09 a barrel in New York
- Brent advanced 97 cents to $32.84 a barrel
Despite gains in the futures market, physical prices continue to fall as refineries cut processing rates and purchases. North American landlocked crudes are fetching ever lower prices, with grades in the U.S. Bakken region back beneath $10 and oil in Canada at a record low. Alberta Premier Jason Kenney warned on Tuesday that there’s a “very real possibility” of negative prices.
Part of the volatile session today was due to the ongoing rollover activity by investor funds, McGinn said. “The United States Oil Fund roll volume had peaked just before close, tripping a circuit breaker,” before easing back lower, he said. The fund had begun its rollover on Tuesday, selling the front month to buy the next three months.
Other oil-market news:
- In a sign that G-20 consumers will try to help balance the market, India -- the world’s third-biggest oil user -- is set to snap up millions of barrels of Middle Eastern crude for its strategic reserves, according to officials.
- Algeria sees a “massive output reduction, which may reach 10 million barrels a day, according to energy minsister Mohamed Arkab.
- Oil demand in the world’s third-biggest consumer has collapsed by as much as 70% as India endures the planet’s largest national lockdown, according to officials at the country’s refiners.
- Marathon Oil Corp. is reducing capital spending this year to about half of 2019 levels, joining a parade of shale drillers doing the same.
- Marathon Petroleum Corp. is reducing the operating rates for its 16 U.S. refineries by about one-third.
--With assistance from Elizabeth Low, Javier Blas, Alex Longley and James Thornhill.
To contact the reporter on this story:
Sheela Tobben in New York at vtobben@bloomberg.net
To contact the editors responsible for this story:
David Marino at dmarino4@bloomberg.net
Mike Jeffers, Catherine Traywick
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