Oil edges up ahead of OPEC++ meeting on hopes of output cuts

Oil prices inch up as anticipation grows that an unprecedented deal between top world producers to pull back output is on the horizon to address growing oil stockpiles as the pandemic dried up demand. 

Brent is trading towards $34 per barrel level, having risen from this week’s low of $31.87.

While The Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia and non-OPEC leader Russia look to re-enter into a pact to cut production, Both Moscow and Riyadh have said other producing countries such as the United States, Canada and Norway need also to be a part of controlling global oil supply – with the new cluster of countries, being known as OEPC++.

OPEC members and Russia are set to virtually meet later on Thursday to iron out the pact, having rescheduled the meeting from Monday, which was cancelled after a war-of-words over the weekend between Saudi Arabia and Russia. The countries will have to agree on the allocation of cuts and also a baseline to cut from. 

The top two oil producers launched a price war last month after breaking away from a historic deal to curb production and instead have boosted output significantly to gain back lost market share to U.S.

Following a sharp price drop, Russia said Wednesday it is will to reduce output by 1.6 million barrels per day (bpd), or roughly 15 per cent, while Canada and Norway have also expressed willingness to enter into a product-cut agreement.

Uncertainty remains over U.S., where President Donald Trump despite his diplomatic pressure on Russia and Saudi Arabia to reduce output, has not committed to the country’s producers pulling back. He instead believes the free market forces will reduce output from its independent producing companies.

Thursday’s meeting will discuss a “massive output reduction, which may reach 10 million barrels a day,” Algeria's energy minister and this year's OPEC president said, according to its state news agency. G-20 energy ministers will then discuss broader contributions to any agreement on Friday through a video conference.

While Trump has volunteered the idea of a possible 10 million barrels (per day) cut, which equals 10 per cent of global supply, by OPEC and Russia, industry experts see a much larger drop in demand, of at least 25 million bpd and as much as 35 million bpd as pandemic-driven government lockdowns take their toll on transport and economic demand.

“The U.S. has dominated production over the last decade, more than doubling production while the Russians and Saudis have posted modest gains,” Edward Moya, senior market analyst at OANDA. “The last three years of OPEC + production cuts pretty much saw the U.S. take almost 5 million barrels of market share. The base case is still that a deal will get done or that talks will be extended, and that is pretty much the only thing keeping oil prices supported,” he added.

Separately, the U.S. government on Wednesday reported a weekly decline in domestic crude production, along with an 11th straight weekly increase in crude supplies. Data from the Energy Information Administration (EIA) revealed that total U.S. crude production fell by 600,000 barrels a day to 12.4 million barrels per day for the week ended April 3. U.S. crude supplies, meanwhile, rose by 15.2 million barrels last week, much higher than analysts’ expectations.

The EIA data showed a supply increase of 10.5 million barrels for gasoline and a climb of 476,000 barrels for distillates.