Oil rises in volatile trading as production deal nears

Bloomberg

Oil rose but trading was volatile as the world’s top producers inched towards a deal to curb output.
Brent futures were higher on the day, but fell sharply by about $2 a barrel on concerns that any deal may not be enough to stem rising inventories. The Opec+ meeting discuss curbing output by 10 million barrels a day, said Algeria’s energy minister, who holds Opec’s rotating presidency. Saudi Arabia and Russia are still disagreeing over baseline for Opec+ oil-production cuts, with the kingdom insisting that reductions should be measured against April output, delegates said.
Decisions at the online gathering will form the basis of Friday’s discussions on further contributions from G-20 nations, with US involvement seen as key.
Major producers are scrambling for a deal as energy consumption has plummeted and hammered prices. Oil demand in India has collapsed by as much as 70% and some American refineries face closure as consumption fell to lowest in at least three decades. Producers will need to agree on a deep and prolonged supply cut, or risk crude falling back again.
All but one of 26 analysts, traders and refiners surveyed by Bloomberg forecast that a production cut will be agreed this week, with the average of their estimates at 8.5 million barrels a day. While that’s a vast decrease, it would pale in comparison to the demand loss that some gauge is as much as 35 million barrels a day.
Opec and its allies, and the G-20, face a huge task in trying to drain the large oversupply. But there are signs that the market is banking on improved balances down the line. Volatility for the second half of 2020 has fallen sharply in recent days.

, indicating that the market has faith in Opec+ restoring price stability, brokerage Marex Spectron wrote in a report.

While the anticipation of a production agreement has pushed prices slightly higher, WTI crude is still down more than 55% this year. That is giving India an opportunity to bolster its strategic reserves, while South Korea has said it will expand its storage this year.
Opec and its allies, and the G-20, face a huge task in trying to drain the large oversupply. But there are signs that the market is banking on improved balances down the line. Volatility for the second half of 2020 has fallen sharply in recent days, indicating that the market has faith in Opec+ restoring price stability, brokerage Marex Spectron wrote in a report.

G-20 to monitor oil-stabilisation moves
Bloomberg

The Group of 20 plans to create an ad hoc group to ensure that steps to stabilise oil markets expected to be agreed on Friday are implemented, according to a draft of the communique circulated to member countries.
The body would be assigned with monitoring implementation and reporting back to G-20 energy ministers “for further corrective actions if needed,” according to the draft, which was described to Bloomberg by people who had seen it. The composition of the committee is still under discussion.
Stabilisation measures could also include steps by major oil consumers to support the market, such as purchases for strategic reserves. The text could still be changed before final document is approved on Friday’s video-conference, the people said.
Among the issues still under debate is whether to refer specifically to the agreement expected from Opec and its allies Thursday, and if so, how. While some countries are pushing for language “welcoming” that deal, others are encouraging a more neutral mention, according to one of the people. Another said the pact may not appear in the text at all.
The G-20, in which Saudi Arabia holds the chairmanship this year, is taking an unprecedented role in the oil-output cuts discussions. Traditionally, it was OPEC and its allies who discussed production quotas, with the G-7 and the G-20 more than often urging the cartel to boost production to keep prices lower. But with global oil demand plunging due to the impact of coronavirus, the U.S. and others are using the G-20 forum to put pressure on the OPEC+ alliance to cut production and lift oil prices.