Oil Clinches Gain Despite Russia Indecision on OPEC+ Output Cut

The world’s largest oil traders are seeking to store crude on tankers at sea as the industry tries to deal with the oversupply.

Jacqueline Davalos

12 Feb 2020, 10:44 AM IST

Oil Clinches Gain Despite Russia Indecision on OPEC+ Output Cut

An employee holds a sample of crude oil on his glove. (Photographer: Andrey Rudakov/Bloomberg)

(Bloomberg) -- Oil held gains as investors weighed hopes for a decision by Russia to accept an OPEC+ proposal for production cuts against an increase in American crude stockpiles.

Futures were little changed in New York on Tuesday after the American Petroleum Institute reported that U.S. crude inventories rose 6 million barrels last week, according to people familiar with the data. Energy Minister Alexander Novak said that Moscow is “studying” the OPEC+ output-cut plan after days of hesitation, calling the situation “extremely unstable.” Novak is set to meet with Russia’s oil companies on Wednesday.

“OPEC+ needs to balance production with the demand trajectory, which looks down,” Frances Hudson, global thematic strategist at Aberdeen Standard Investments, writes in an email. “If a decision is not taken until the next scheduled meeting in March, I would expect this to limit the scope for what can be achieved.”

The Organization of Petroleum Exporting Countries and its allies have signaled a desire to stabilize the oil market that has tumbled over 18% since the beginning of the year as the coronavirus outbreak inflicts severe economic disruption in China.

Impact from the virus has intensified concerns of weak crude demand hitting the second largest economy in the world, prompting technical experts from the coalition to propose deepening the current supply cuts by 600,000 barrels a day to relieve excess inventories.

The Energy Information Administration cut its global petroleum demand growth outlook by 23% to 1.03 million barrels a day, citing partial effects from the coronavirus in its monthly Short-Term Energy Outlook.

The exact impact of the virus has been difficult to quantify, so analysts have narrowed in on other demand indicators for clues. Morgan Stanley cut its oil demand growth forecast for 2020 by 15% amid plunging passenger transport volumes. Chinese refined product demand is seen down around 1.2 million barrels a day in the first quarter compared with same quarter last year, according to IHS Markit.

The API report also showed distillate supplies fell by 2.33 million barrels last week, while gasoline stockpiles increased by 1.08 million barrels.

West Texas Intermediate crude for March delivery traded at $50.00 a barrel at 4:44 p.m. after ending the session at at $49.94 on the New York Mercantile Exchange.

Brent crude for April settlement rose 74 cents to settle as $54.01 a barrel on the ICE Futures Europe exchange in London, putting its premium over WTI at $3.84, the smallest spread between the two contracts since early 2018.

“There’s a new calculus for importers, particularly Mediterranean and Asian buyers who were happy to take U.S. barrels when they were $6 dollars cheaper. Now it’s only $3 less,” said Bob Yawger, futures director at Mizuho Securities USA.

OPEC’s response could face another hurdle if Libya’s United Nations-led peace talks result in a resumption of oil exports that halted after a blockade by supporters of commander Khalifa Haftar. Libyan economic experts are weighing the distribution of oil revenue in an effort to end the conflict between the internationally recognized government in Tripoli and Haftar.

Other oil-markets news:
Gasoline futures fell -0.5% to settle at $1.5142. Occidental Petroleum Corp. climbed after production exceeded estimates despite lower capital spending, a sign that a key rationale for buying Anadarko Petroleum Corp. is beginning to work. As BP Plc’s new chief delivers his vision to transform the company on Wednesday, investors and activists want to know just how much appetite he has to take on the existential crisis facing the oil industry. Chevron Corp. has ramped up output at a key Venezuela oil project to levels not seen in almost a year, offering a thorny reminder of how U.S. sanctions are failing to deliver a knockout of Nicolas Maduro’s regime. Distressed oil supplies are being offered to India as the spread of coronavirus crimps fuel consumption across China.

Other oil-markets news:

Gasoline futures fell -0.5% to settle at $1.5142.
Occidental Petroleum Corp. climbed after production exceeded estimates despite lower capital spending, a sign that a key rationale for buying Anadarko Petroleum Corp. is beginning to work.
As BP Plc’s new chief delivers his vision to transform the company on Wednesday, investors and activists want to know just how much appetite he has to take on the existential crisis facing the oil industry.
Chevron Corp. has ramped up output at a key Venezuela oil project to levels not seen in almost a year, offering a thorny reminder of how U.S. sanctions are failing to deliver a knockout of Nicolas Maduro’s regime.
Distressed oil supplies are being offered to India as the spread of coronavirus crimps fuel consumption across China.

--With assistance from Serene Cheong, James Thornhill and Elizabeth Low.

To contact the reporter on this story: Jackie Davalos in New York at jdavalos10@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Mike Jeffers, Catherine Traywick