Oil resumed gains to near $23 a barrel as investors weigh whether a deal by the world’s biggest producers to reduce output will be enough to offset the demand destruction caused by the coronavirus.
Futures added 1.1% in New York, on track for its first advance in three sessions. Saudi Arabia’s energy minister told reporters on Monday that the kingdom is ready to trim supply further if needed when the OPEC+ alliance meets again in June. U.S. President Donald Trump tweeted that the cuts agreed by the coalition would be closer to 20 million barrels per day, without getting into specifics, amid doubts that the reduction is not deep enough.
The May-June timespread moved deeper into contango, signaling an expanding physical glut even with the curbs. The OPEC+ agreement to slash production by 9.7 million barrels a day starting in May amounts to the largest coordinated cut in history, but is still dwarfed by the much greater decline in oil consumption.
Oil has been in freefall since the middle of February after nation’s across the world went into lockdown to try to stop the virus from spreading, curbing consumption of everything from jet fuel to gasoline. As global demand vanishes, Saudi Arabia is seeking to keep its barrels competitive by reducing prices for all its grades to Asia and the Mediterranean region.
“I can’t see a return to previous consumption levels for oil until 2021 and a lot of the good news is already built in,” said Jeffrey Halley, senior market analyst for Asia Pacific at Oanda. “Even after the tentative reopening of economies, it is still going to be quite challenging for OPEC to match their supply to the actual demand for oil.”
West Texas Intermediate for May delivery rose 24 cents to $22.65 a barrel on the New York Mercantile Exchange as of 12:27 p.m. Singapore time after increasing as much as 3% earlier. The contract declined 1.5% on Monday. Brent for June delivery gained 1.5% to $32.21 a barrel on the ICE Futures Europe exchange after climbing 0.8% on Monday.
Saudi Arabia would only cut its crude output further if others within OPEC+ reduced their production accordingly, Energy Minister Prince Abdulaziz bin Salman said on a conference call. He cautioned that the more bearish forecasts for oil demand destruction may be too pessimistic, and therefore the alliance may not need to make deeper cuts.
Texas oil regulators are scheduled Tuesday to discuss supply restrictions in response to the price crash, but KPMG International sees a low probability that cuts will be instituted. Texas pumps more oil than every OPEC member except Saudi Arabia. The U.S. was conspicuous as a hold-out on global output curbs, instead leaving it up to individual companies to steer production decisions.