Oil hovers below $47 while OPEC waits for Russia on supply deal
Oil gyrated around $47 a barrel in New York as OPEC ministers laid the groundwork for a large production cut, even as a potential deal remains uncertain given Russia's opposition.
Crude, which has plunged about 24% so far this year, swung between gains and losses as details of the proposal emerged. Ministers meeting in Vienna first said they were seeking to back a 1.5 million-barrel-a-day reduction, but cautioned that the plan is contingent on Russia's support, which is so far not evident. Prices initially rallied, but then erased gains after the announcement.
"Prices are drifting lower now, which means there's no confidence going into the meeting," said Bob Yawger, director of the futures division at Mizuho Securities USA. "OPEC will need to pull the rabbit out of the hat here by the end of the day tomorrow if they want to support the market."
The need for the oil cartel to curb supply will be more pressing this year as global markets falter over fears of the coronavirus, or Covid-19, spreading, which is also denting oil demand. Oil producers are struggling against a weakening demand outlook, the likes of which hasn't been seen in years.
When OPEC released its supply and demand model in early February, it pegged global oil-consumption growth this year at 990,000 barrels a day. Now the group sees growth at just 480,000 barrels a day. Large Wall Street banks and consultancies are even anticipating global oil demand contracting in 2020 for only the fourth time in nearly four decades.
"We have modeled out three likely outcomes of the OPEC+ meeting, and not a single one of them comes close to bridging the supply-demand balance," Bjørnar Tonhaugen, head of oil markets at Rystad Energy, said in a note. "Even though OPEC+ is already tremendously over-complying on cuts agreed upon in Dec-19, it's not enough to counter the demand destruction of Covid-19."
West Texas Intermediate futures for April delivery rose 3 cents to $46.81 a barrel on the New York Mercantile Exchange as of 11:05 a.m. local time. Brent futures for May dropped 5 cents to $51.10 a barrel on the ICE Futures Europe exchange. The premium for Brent over WTI in May traded at $4.07 a barrel.
The Organization of Petroleum Exporting Countries agreed it should cut daily crude output by 1 million barrels in the second quarter, with further curbs of 500,000 barrels coming from non-OPEC allies, according to a statement. But Russian Energy Minister Alexander Novak left Vienna on Wednesday without backing such a proposal, and won't return to negotiations until Friday.
After the talks on Thursday, Iranian Oil Minister Bijan Namdar Zanganeh conceded there's no plan B if Russia doesn't agree.
