Saudi Arabia and Russia have reached an agreement in principle to cut oil production, The Wall Street Journal has reported. The Organisation of the Petroleum Exporting Countries is holding a virtual meeting with its allies, which include Russia, with a goal to help balance the oil market that has suffered from a drop in demand tied to efforts to stop the spread of COVID-19 and a price war between Moscow and Riyadh that has flooded the world with crude. Under the agreement in principle, Saudi Arabia would remove 4 million barrels a day from its April production levels, while non-OPEC member Russia would cut 2 million barrels a day, The Wall Street Journal reported. Iraq and other major oil exporting nations in the OPEC+ have not yet agreed on specific oil production cuts. May West Texas Intermediate crude was up $1.02, or 4.1%, to $26.11 a barrel. June Brent crude rose 70 cents, or 2.1%, to $33.54.
Oil futures climbed on Thursday, but were off their sharpest gains, as investors awaited the final word from a crucial meeting of OPEC and its allies that is expected to lead to an agreement to cut global crude production and end a price war between Russia and Saudi Arabia. “They will reach a decision. They can’t afford not to,” said Matt Smith, director of commodity research at ClipperData. “Inventories are filling too fast. They need to slow that trajectory. The magnitude of the cut is the main thing—still expect 10 [million barrels a day], with the Saudis cutting from the current elevated level of over 12 million bpd,” he told MarketWatch. Investors bid the price of crude up on Wednesday in anticipation of a pact between the oil-producing behemoths, which could result in daily cuts by members of the Organisation of the Petroleum Exporting Countries and their allies, collectively known as OPEC+.
West Texas Intermediate crude for May delivery was up $1.32, or 5.3%, at $26.41 a barrel on the New York Mercantile Exchange but had been more than 10% higher around the peak for the contract. The contract settled 6.2 per cent higher on Wednesday, putting the front-month contract still traded around 2.7% lower. June Brent crude picked up 99 cents, or 3%, at $33.86 a barrel a barrel on ICE Futures Europe, after closing 3% higher on Wednesday. Also well off its intraday highs at $36.40. The front-month international contract was trading roughly 2.8% higher for the week. Last week, President Donald Trump tweeted that he expects Saudi Arabia and Russia to cut oil production by 10 million barrels per day to as much as 15million barrels a day. “A positive outcome for oil prices from the OPEC+ meeting would be a global agreement to cut output beyond OPEC and Russia,” wrote Stephen Innes, chief market strategist at AxiCorp in a late-Wednesday note. “That would require cuts from the U.S., and smaller non-OPEC producers,” he wrote. Although the virtual meeting is expected to formalise more tentative agreements, there remains the potential for drama. A gathering in early Match broke down spectacularly after OPEC’s most influential member, Saudi Arabia, and nonmember Russia failed to strike an accord on cuts — leading to an internecine clash that accelerated a crushing move lower in the price of U.S. and international-grade oil. This time the stakes feel higher yet.
