Oil prices gain on hope of substantial cuts to production by Saudi Arabia - MarketWatch

Oil futures on Wednesday traded higher as commodity experts wager that an important meeting of OPEC and its allies will result in a cut in crude output to stabilize prices.

Prices, however, pared some of their gains after the EIA reports a sixth straight weekly rise in U.S. crude supplies.

“Despite subdued imports, and oil exports coming in well above 4 million barrels per day, a big drop in refining activity has propelled oil inventories to a sixth consecutive build,” said Matt Smith, director of commodity research at ClipperData. “Countering the bearish crude build has been solid draws to the products.”

April West Texas Intermediate crude CLJ20, +0.04%  rose 55 cents, or 1.7%, to reach $47.73 a barrel on the New York Mercantile Exchange after trading as high as $48.41. The global benchmark, May Brent crude BRNK20, -0.54% advanced 63 cents, or 1.2%, at $52.49 a barrel on ICE Futures Europe.

Data from the Energy Information Administration on Wednesday revealed that U.S. crude supplies rose by 785,000 barrels for the week ended Feb. 28. The government agency had reports increases in each of the previous five weeks.

Analysts polled by S&P Global Platts expected the data to show a rise of 3.5 million barrels. The American Petroleum Institute on Tuesday reported a climb of 1.7 million barrels, according to sources.

The EIA data also showed supply declines of 4.3 million barrels for gasoline and 4 million barrels for distillates. The S&P Global Platts survey had shown expectations for supply declines of 2.8 million barrels for gasoline and 2.4 million barrels for distillates.

On Nymex, April gasoline RBJ20, +1.02%  rose 2.9 cents, or 1.9%, to $1.5605 a gallon, while April heating oil HOJ20, +0.18%  added 1.3 cents, or 0.9%, to $1.546 a gallon.

April natural gas NGJ20, +0.22%  , meanwhile, rose 1.8 cents, or 1%, to $1.818 per million British thermal units.

The EIA, however, also reported that domestic production edged up to a fresh all-time high of 13.1 million barrels a day and “exports from the U.S. climbed to their second highest level on record, suggesting that the U.S. is continuing to capture market share from OPEC+ producers,” said Tyler Richey, co-editor at Sevens Report Research. “Both of those developments are bearish.”

Meanwhile, the Joint Ministerial Monitoring Committee, or JMMC, which monitors compliance with the earlier production-cut agreement, has recommended extending existing cuts of 1.7 million barrels a day, which conclude at the end of the month, to the end of the year and markets are anticipating that the group will seek even deeper cuts amid the coronavirus outbreak.

Members of the Organization of the Petroleum Exporting Countries and allies, including Russia, in a separate group known as OPEC+, begin their meetings on Thursday.

The de facto leader of OPEC, Saudi Arabia, has reportedly agreed to shoulder the lion’s share of a proposed 1 million barrel-a -day output reduction.

“In Vienna, Russia is merely posturing and acting as a tough negotiator in showing its reluctance to make additional cuts; it stands as much to gain from voluntary cuts as OPEC members do,” said Manish Raj, chief financial officer at Velandera Energy. “Therefore, the market expects Russia to fully co-operate. A breakdown of such alliance would be highly disruptive, but is not factored in the oil prices, given the remote possibility of such.”

Oil prices got a further boost on news that factories are restarting and traffic is emerging on the roads in China, said Raj. “As China gets back on its feet, oil producers take a sigh of relief that the impact of the coronavirus is short lived.”

Still, the viral outbreak has shutdown swaths of China’s economy, one of the biggest importers of crude oil, and the spread of the deadly disease also threatens to have a pronounced impact on global demand because economists fear that the outbreak could lead to a world-wide recession if left unchecked.

“We’ve seen some strong responses already from the various monetary authorities in recent days and some governments have also announced some bold measures, with others likely to follow,” said Craig Erlam, senior market analyst at Oanda, in a Wednesday research report, referring to measures by central banks to limit the economic impact of the coronavirus outbreak that originated in Wuhan, China in December and has sickened around 92,000 world-wide.

Read: Coronavirus and Russia pose the biggest challenges for OPEC+ efforts to lift prices

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