Oil rises as top producers move towards deal

OPEC+ will meet later in the day with expectations growing it will agree to reduce output

SINGAPORE: Oil prices rose on Thursday after Russia said it was ready to slash output, fuelling hopes that key producers are poised to seal a deal aimed at boosting coronavirus-hit energy markets.

US benchmark West Texas Intermediate was up about 3% at $25.84 a barrel in afternoon Asian trade, having risen almost 5% at the open.

Brent crude, the international benchmark, rose 0.7% to $33.08. It had jumped about 3% in earlier deals.

Exporting group, the Organisation of the Petroleum Exporting Countries (OPEC), and allies including Russia as well as other major producers will hold a teleconference later in the day with expectations growing that they will agree to reduce output to support the struggling market.

Prices are at near two-decade lows with travel restrictions and lockdowns imposed to halt the spread of the virus throttling demand, and Riyadh and Moscow locked in a vicious price war.

But Saudi Arabia and Russia, the world’s top exporters, now look set to draw a line under their dispute to help provide some stability.

Moscow said on Wednesday it is willing to cut output by 1.6 million barrels per day (bpd), or about 15%, Bloomberg News reported, smoothing the path towards a deal.

In a further sign that a deal was imminent, Kuwait Oil Minister Khaled al-Fadhel reportedly said top producers intend to cut production by between 10 and 15 million bpd.

Fadhel said in an interview with Kuwaiti daily Al-Rai, published on Thursday, that the aim of the huge reduction is to “restore balance to the market and prevent further drops in prices”.

A key sticking point had been whether the US would join any deal, but analysts say a fall in America’s crude output forecast released earlier this week is likely enough to satisfy Riyadh and Moscow for now.

Another key meeting takes place on Friday, when G20 energy ministers hold talks remotely to discuss steps to steady the market.

Still, analysts caution that the devil will be in the detail, and an output cut deemed too small could send prices even lower.

A cut of just 10 million bpd “might not trigger much of a rally and probably eventually see selling pressure drive crude back to the low mid-$20s”, said Edward Moya, senior market analyst with Oanda.

A more modest output reduction may also not go far enough to tackle growing oversupply caused by weak demand. Rystad Energy forecasts the global oil glut could reach 25 million bpd in April.

Moya also cautioned that a “turn for the worse could happen”, which derails a deal, adding that “the following 24 hours will be critical for global oil prices”.