By Barani Krishnan
Investing.com - The world is trying to get together to contribute oil production cuts to pacify the Saudi and Russian oil titans in the hope they’ll go back to cutting and cutting even more.
Yet crude prices fell 9% on Tuesday, erasing early gains, as traders wondered whether any production restraints now will be enough to rescue a market facing a potential demand loss of 20 million to 30 million barrels per day due to the coronavirus pandemic.
West Texas Intermediate, the New York-traded benchmark for U.S. crude, settled down $2.45, or 9.4%, at $23.63 per barrel.
WTI rose to $27.24 earlier, trying to restart last week’s record 32% rally, on initial optimism about OPEC+-G20 meetings later this week could result in taking a total of 10 million bpd from the market. That would be the steepest coordinated production cuts in oil’s history and could include unprecedented commitments from Brazil and Canada.
Brent, the London-traded global benchmark for crude, settled down $1.18, or 3.6%, at $32.16 per barrel.
Brent hit $34.17 earlier before turning negative on doubts that the main actors in the game — Saudi Arabia, Russia and the United States — will be able to send a convincing message to the market on their commitment to put a floor under prices, which were down more than 50% on the year.
“The Russians want to cut a nominal 0.5-1 million bpd according to reports and the U.S. might just come to the meetings, saying its production has already fallen 2 million bpd or so over the past month, so that’s it’s contribution,” said John Kilduff, founding partner of New York energy hedge fund Again Capital. “That means the ball will be back at the Saudis’ feet, to see if they’ll do more than the 3 million bpd everyone expects of them.”
“The market isn’t inspired at the least by all this, and we could give back a chunk, if not all of the gains from last week, depending how these meetings go.”
Rystad Energy’s Bjornar Tonhaugen agreed, telling Reuters that “(w)ith 28 million bpd of oversupply in the oil market in April and 21 million bpd in May, the global coordinated production cuts that are really needed may be too large for the producers to accept; perhaps twice as large as the numbers being discussed.”
The OPEC+ meeting led by Saudi Arabia and including the group’s key ally Russia is on Thursday. The G-20, which includes the United States, is to meet on Friday.
President Donald Trump, when asked on Monday what the United States would offer in terms of production cuts, said OPEC had not pressed him at all.
“I think it’s happening automatically but nobody’s asked me that question yet so we’ll see what happens,” Trump said.
The U.S. answer might be provided by official data released by the Energy Information Administration on Tuesday that forecast U.S. crude oil production will average 11.8 million b/d in 2020 from the current weekly estimate 13 million bpd.
Meanwhile, Bloomberg reported that Moscow will want a reduction of just 0.5 to 1 million bpd at most, citing long-term damage to its oil reservoirs if it did more.
The Saudis haven’t officially committed to any volume of cuts yet.