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Oil prices rise on optimism OPEC+ meeting will result in supply cut

Published 04/08/2020, 06:13 PM
Updated 04/09/2020, 03:45 AM
© Reuters. FILE PHOTO: Oil pump jacks work at sunset near Midland, Texas

© Reuters. FILE PHOTO: Oil pump jacks work at sunset near Midland, Texas

By Sonali Paul

MELBOURNE/SINGAPORE (Reuters) - Oil prices rose on Thursday on expectations the world's largest oil producers would agree to cut production at a meeting later in the day as the industry grapples with a coronavirus-driven collapse in global oil demand.

Brent crude (LCOc1) futures rose by almost 2.6%, or 87 cents, to $33.71 a barrel as of 0701 GMT. The contract rose to an intra-day high of $33.90, climbing for a second day.

U.S. West Texas Intermediate (WTI) crude (CLc1) futures were up 5%, or $1.27 cents, at $26.36 a barrel, after earlier climbing by as much as 6.1%.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia - a group known as OPEC+ - are set to convene a video conference meeting on Thursday.

The meeting is expected to be more successful than their gathering in March, where they failed to agree to extend supply cuts and triggered a price war between Saudi Arabia and Russia.

Hopes of an agreement to cut between 10 million and 15 million barrels per day (bpd) rose after media reports suggested Russia was ready to reduce its output by 1.6 million bpd and Algeria's energy minister said he expected a "fruitful" meeting.

Such a sizable reduction would be far bigger than any production cut OPEC has ever agreed on before.

"We're waiting with bated breath," said Lachlan Shaw, head of commodity research at National Australia Bank.

"I think there'll be a deal, which will bring a bit of cheer in the short run. Then everyone's attention will refocus on the fundamentals. The fundamentals are appalling," he said.

Following the OPEC+ meeting, energy ministers from the Group of 20 major economies are set to meet to find ways to help ease the impact of the COVID-19 pandemic on global energy markets.

"If the G20 came out and talked about adding to strategic reserves, that would be taken positively," Shaw said.

However with oil prices having lost half their value since the start of the year and oil demand forecast to slide as much as 30%, analysts are sceptical about how effective an OPEC+ cut would be in shoring up prices.

"Ultimately, the size of the demand shock is simply too large for a coordinated supply cut," Goldman Sachs (NYSE:GS) said in a note.

UBS expects oil demand this quarter to fall by about 20 million bpd, down 20% from a year earlier.

Given the rapidly rising oil inventories, the market is likely to be still awash with cheap oil even when demand recovers.

U.S. Energy Information Administration data on Wednesday showed crude stocks rose by 15.2 million barrels, their biggest ever one-week rise.

© Reuters. FILE PHOTO: Oil pump jacks work at sunset near Midland, Texas

Latest comments

What time is the meeting ?
For 3hours
Opec meating result suply cut then up down ???
Is it wrong to hope for no deal from Russia so we can see who survives the fallout?
trade the rumor, sell the news!!! beside whatever amount they cut won't be enough to offset the drop in demand, and soon we'll run out of storage space.
Amen
They must cut, because oil over supply now and no more demand
They will not agree on cuts because they think less people are dying all over the world and they do not want to lose their market share. I will buy SCO when US markets open in 3 hours 10 minutes. GL
The DOW jones and All US markets are going up because they think less people are dying. OPEC+ will take their Hints from that.
covid in usa will take at least 2 months to slow down. thy havent reach or knw the peak of the curve yet. market is reacting based on hope. i dont thk oil current oil price for another 2 mths is sustainable.
In few day, global patients of corona virus jumped from 1M to 1.5M now. In U.S. there’s only 5-6% of corona patients which recover, but more and more people get infected.
they will cut, but how much each countries would cut it another problem
Past 2 weeks, Saudi invested over 1bil in euro oil. There's your answer
I hope there will be best outcome....
99.9% people don't feel any optimism
what time the meeting supposed to be happen? IST TIME.
10 eastern time
I have a feeling it will be postponed again to see if the number of cases and deaths re declining.
Any sources?
Waiting to see the result of the meeting with the good agreement.
no deal. all markets crash. predators show up and take over the earth.
As i saw the comment below, why all so confident the production will be cut. Is it the storage capacity is full?
part of the reason. if the countries don't intend to partake in production cut, why host the meeting in the first place. the question now is how much they will cut and how is it distributed.
I dun think there will be production cut deal during today's meeting. USA refused joining and wait for higher oil price? If I were Russian, I won't cut my production and u get benefit. No such deal
yes i thk the same. no usa, no deal.
This whole thing started because russia didn't want the USA to produce the most oil and benefit from others supply cuts to boost prices.
If we cut production, oil prices will increase again, will everyone, and the meeting will definitely cut production. Can anyone give me an idea?
the only reason for production cut wld be the storage capacity filling up to max bcoz of min demand. i thk thy will make a deal for production cut. but any words of threatening or blaming will pull off the plug.
it's true that a production cut is best for everyone, I'm looking at a really fruitful day myself
this is a bottom in oil its going to work its way back to 60 a barrel by years end. China and the US are gonna stock up on their oil reserves too and if trump does tarrifs on top of that Oil could even go higher. This coronavirus thing wont last much longer so this is a bottom in oil. It only has a lot of momentum of good going forward. that over supply in oil is fake news anyways. china and the US economy is built around oil. We use it for everything. And we are running out. Its why we are in middle east over and over again and you see shell going to somalia to find oil and also you see them out in the ocean looking for oil. We don't have a ton of oil its constantly being consumed and with out countries trying to copy the US and China it will take even more oil to keep those economies up and running. pretty sure we run out by 2050.  We use way more oil then we ever used. Even a tesla is made out of oil each tire is 8 pounds of oil. Without oil china and usa will be 3rd world countries
Hit $40, then the pitfall will start
I am pretty sure they will reduce crude produced, share price will suddenly go up and will drop after that because of some reasons.
why sudden drop.?
 oversupply
You are in denial if you think they are not cutting supply there is no where to put the oil duh! We are heading to $35
3 month cut? Does any country need oil the next 3 months? I thought all containers were >90% full & most locked down at least 1 - 2 months
Yea...no ita not sell the news, just cover your short. $35 tomorrow get ready
I think $30 and no deal
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