Oil extends gains amid hope of output cut
Markets pin hopes on US oil producers reducing output as Saudi Arabia plans to boost supplies
Tokyo – Oil prices climbed for a second day on Wednesday as hopes US producers would cut output lent support, but gains were capped by growing doubts about Washington’s stimulus package to fight the coronavirus, which continues to spread globally.
Brent crude futures rose $1.26, or 3.4%, to $38.48 a barrel by 4.18am GMT, while US West Texas Intermediate (WTI) crude gained $0.91, or 2.7%, to $35.27 a barrel.
They have recouped nearly a half of Monday’s 25% loss, which was triggered by the clash of oil titans Saudi Arabia and Russia.
“Expectations that US shale oil producers will need to trim output helped improve the market sentiment,” said Satoru Yoshida, a commodity analyst with Rakuten Securities.
US shale producers, including Occidental Petroleum, deepened spending cuts that could reduce production after crude prices slumped to their lowest levels in more than three years.
Oil and equity markets staged solid rebounds on Tuesday after the previous day’s pummelling, on signs of co-ordinated action by the world’s biggest economies to cushion the economic affect of the epidemic.
But growing scepticism about Washington’s stimulus package knocked the steam out of an earlier rally in Asian shares on Wednesday.
The fast-spreading coronavirus also weighed on investor risk appetite. The death toll in Italy due to the virus jumped to 631, while China’s new cases rose for the first time in five days as infected individuals arrived from overseas.
“The rebound in crude oil is not expected to last long, with Saudi and Russia boasting about how much they can boost output by as the battle for market share begins,” ANZ said in a note.
Saudi Arabia said on Tuesday it would boost its oil supplies to a record high in April, raising the stakes in a standoff with Russia and effectively rebuffing a suggestion from Moscow for new talks on production levels.
“Saudi had failed to boost its market share when it temporarily raised output in 2014 as US shale oil producers showed stronger tolerance to tanking oil prices due to improved efficiency, underlining Saudi’s limited influence as a swing producer,” Ito Mashino, an analyst at Mitsui & Co Global Strategic Studies Institute, said.
“Still, the breakdown of the latest round of Opec+ talks won’t mean the end of the Opec+ framework ... their actions will depend on oil prices,” she said.
US crude oil inventories rose in the most recent week, while petrol and distillate stocks dropped, data from industry group the American Petroleum Institute showed on Tuesday.