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Oil prices headed higher Wednesday, buoyed by a weekly decline in U.S. crude production, as investors grow hopeful that major oil producers will agree to output cuts this week.
The Energy Information Administration reported a weekly decline of 600,000 barrels per day in domestic crude production on Wednesday from a near record level to 12.4 million barrels a day for the week ended April 3. It also reported, however, that U.S. crude supplies rose for an 11th straight week.
Still, the meeting Thursday with OPEC and outside nations, collectively known as OPEC+, to discuss a possible cut to global production “will be the determining factor [on] whether we see crude stabilize or go slightly higher from here or revisit the lows under $20,” said Tariq Zahir, managing member at Tyche Capital Advisors.
“Demand destruction by road and by air is astonishing and doesn’t look to get better in the near term” as efforts to stem the spread of COVID-19 continue to hamper travel, he told MarketWatch.
West Texas Intermediate crude for May delivery CLK20, +2.87% rose 70 cents, or 3%, to $24.33 a barrel. On Tuesday, the contract dropped 9.4% to settle at $23.63 a barrel on the New York Mercantile Exchange. June Brent crude BRNM20, +1.00% rose 8 cents, or 0.2%, to $31.95 a barrel. The contract lost 3.6% to $31.87 a barrel on ICE Futures Europe Tuesday.
“With all the speculation and skepticism about the ability of OPEC+ and the U.S. to agree on production cuts ahead of this week’s OPEC and G-20 oil ministers meetings, there is a feeling we might see some cuts purely out of necessity as storage capacity fills up,” said Michael Hewson, chief market analyst at CMC Markets UK. “This appears to be fueling a little bit of short covering ahead of this afternoons inventory data.”
Major oil producers are scheduled to hold a virtual meeting on Thursday, with media reports indicating Saudi Arabia and Russia were inching toward a deal to cut production and end a damaging price war that has flooded the world with crude supply and caused a storage shortage as major economies shut as governments tried to stop a fast-spreading COVID-19 pandemic.
There has also been speculation that the U.S. may cut production as well or U.S. companies may end up having to cut output anyway, amid low prices.
Read:Why a Saudi Arabia-Russia deal to cut oil output would mean nothing without U.S. cooperation
Data from the EIA Wednesday, meanwhile, showed that U.S. crude supplies rose by 15.2 million barrels last week. Analysts polled by S&P Global Platts expected the data to show a rise of 8.4 million barrels. The American Petroleum Institute on Tuesday reported a climb of 11.9 million barrels, according to sources.
“As refiners slash runs amid cratering product demand, oil inventories are filling quickly, despite domestic production estimates being slashed,” said Matt Smith, director of commodity research at ClipperData.
“Oil inventories are up over 6%, or 29 million barrels, in the last two weeks—that equates to over 2 million barrels per day,” he told MarketWatch.
The EIA data showed a supply increase of 10.5 million barrels for gasoline and a climb of 476,000 barrels for distillates. The S&P Global Platts survey had shown expectations for a supply rise of 5.4 million barrels for gasoline, but distillate stockpiles were expected to fall by 500,000 barrels.
“ ‘Refinery runs last week were the lowest in a decade, while gasoline demand dropped to a record low.’ ”
“Refinery runs last week were the lowest in a decade, while gasoline demand dropped to a record low,” said Smith.
U.S. crude-oil refinery inputs averaged 13.6 million barrels per day last week—1.3 million barrels per day less than a week earlier, according to the EIA. Implied demand for motor gasoline over the past four weeks, meanwhile, fell by more than 19% from the same period a year earlier to average 7.6 million barrels per day.
Separately, in a monthly report issued Tuesday the EIA cut its 2020 oil price outlook by over 20% and lowered expectations for 2020 U.S. crude-oil production by 9.5% to 11.76 million barrels a day.
On Nymex, prices for petroleum products were mixed with May gasoline RBK20, +4.22% up 0.5% at 65.15 cents a gallon, but May heating oil HOK20, -0.57% down 1.4% at $1.0135 a gallon.
May natural gas NGK20, -0.91% traded at $1.846 per million British thermal units, down 0.3% in Wednesday dealings after jumping 7% Tuesday on expectations for a drop in U.S. production.
The EIA will issue its weekly supply report for natural gas on Thursday. On average, analysts expect the report to show an increase of 25 billion cubic feet for last week’s supplies in storage, according to an S&P Global Platts poll.
