By Peter Nurse
Investing.com - Oil markets bounced sharply Tuesday, amid hopes that the extreme global oversupply can be addressed following a phone conversation between Donald Trump and Vladimir Putin that ended with vague promises of support for the market.
AT 9:15 AM ET (1315 GMT), U.S. crude futures traded 4.6% higher at $21.02 a barrel, while the international benchmark Brent contract rose 2% to $26.94, after hitting 18-years lows Monday.
The intervention of the U.S. president suggests the U.S. is becoming increasingly concerned about the low price environment, and that pressure could be put on Russia and Saudi Arabia to get back around the negotiating table to discuss supply cuts.
Pressure is building in Texas, with WTI Midland prices trading sub-US$12/bbl, levels which are just far too low for producers, said ING analysts in a research note. It looks even gloomier for Canadian oil producers, where West Canada Select is now trading below US$5/bbl.
That said, “it is difficult to see Russia resuming talks with Saudi Arabia at the request of the U.S., given that the reason the deal fell apart was due to the fact that Russia was tired of giving market share away to the U.S., “ added ING. “Furthermore, the sanctions we have seen the U.S. impose on a number of Russian companies give little incentive for Russia to listen to the U.S.”
Even if there was to be an agreement, it would have to result in very deep cuts.
IHS Markit expects as much as 10 million barrels a day of world oil production to be cut or shut-in from April through June as storage fills up and demand craters due to the Covid-19 pandemic.
This has resulted in the average cost of chartering a very large crude carrier, capable of holding at least 2 million barrels of oil, in the cash market, rising more than 50% to $208,900 a day, according to an assessment from Clarksons Platou Securities.
Attention will now turn to the latest U.S. crude production figures from the EIA for January later Tuesday, with December crude production at 12.779 million barrels per day.