Oil Clinches Gain After OPEC+ Committee Recommends Supply Cut

Oil extended its rebound from last week’s slump as global policy makers pledged to safeguard markets from the coronavirus

Jacqueline Davalos

04 Mar 2020, 05:32 AM IST

Oil Clinches Gain After OPEC+ Committee Recommends Supply Cut

A yellow pathway marks the walking route on one of the four connected platforms on the Johan Sverdrup oil field off the coast of Norway in the North Sea. (Photographer: Carina Johansen/Bloomberg)

(Bloomberg) -- Oil advanced for a second day after an OPEC+ committee recommended a larger supply cut to offset lost demand from the spread of the coronavirus.

Crude futures rose 0.9% in New York on Tuesday. Ahead of OPEC meetings later this week, the group’s Joint Technical Committee recommended an output cut of 600,000 to 1 million barrels a day. The proposal helped insulate oil from a broader market decline that followed an emergency rate cut by the U.S. Federal Reserve, which investors worried wouldn’t be enough to thwart the economic impacts of the virus.

“Today’s rally is about OPEC,” says Andrew Lebow, senior partner at Commodity Research Group. “It looks like they’ll make a substantial cut and it could bring the oil market closer to equilibrium.”

The Organization of Petroleum Exporting Countries and allied nations will meet Thursday and Friday to discuss measures to shore up slumping oil prices in the face of the spreading virus.

Global petroleum demand is forecast to take a steep hit as the virus spreads more widely, with Morgan Stanley cutting its demand growth forecast for 2020 to 500,000 barrels a day while Goldman Sachs sees global oil demand shrinking 150,000 barrels a day, the lowest annual growth rate since the 2008/2009 financial crisis.

North American crude prices were little changed after an industry report showed a build in U.S. crude stockpiles last week. The American Petroleum Institute reported that inventories rose by 1.69 million barrels, according to people familiar with the data. Distillate supplies fell 1.73 million barrels and gasoline stockpiles fell by 3.89 million, API said.

West Texas Intermediate futures for April delivery traded at $47.19 a barrel at 4:37 p.m. on the New York Mercantile Exchange after ending the session at $47.18. Brent futures for May settlement fell 4 cents to $51.86 on the ICE Futures Europe exchange, putting its premium over WTI at $4.53.

The Fed, the central bank in the world’s largest economy, announced an emergency half-percentage point interest rate reduction after Group of Seven finance chiefs pledged to shelter their economies from the spreading contagion. The total number of coronavirus cases worldwide topped 90,000 on Tuesday.

“The stimulus is encouraging but that’s not moving the timetable for coronavirus recovery and the impact to oil demand,” says Stewart Glickman, an analyst at CFRA Research. “The hope is that OPEC makes a substantial cut to production to meet oil fears head on. It’s uncertain if it will be enough because they’re trying to hit a moving target.”

Central banks in Saudi Arabia, the United Arab Emirates and Bahrain matched the Fed’s half-percentage point cut, hours after Chairman Jerome Powell said the fallout from the virus had increased risks to the U.S. economic outlook.

Other oil-market news:
Gasoline futures fell 0.5% to settle at $1.5313 a gallon. Chevron Corp. plans as much as $80 billion in dividends and share buybacks over the next five years, boosting distributions by as much as 20% compared with the most recent pace of payouts as the U.S. oil giant tries to reassure investors. OPEC and its allies “shouldn’t overreact” on implementing oil production cuts when the group meets in Vienna this week, U.A.E. energy minister Suhail Mohammed Al Mazrouei told reporters Tuesday. A surge in crude sales from Iraq to China last month bolstered the level of oil exports the Middle East’s biggest producers shipped to the Asian country, even as the spread of coronavirus erodes demand.

Other oil-market news:

Gasoline futures fell 0.5% to settle at $1.5313 a gallon.
Chevron Corp. plans as much as $80 billion in dividends and share buybacks over the next five years, boosting distributions by as much as 20% compared with the most recent pace of payouts as the U.S. oil giant tries to reassure investors.
OPEC and its allies “shouldn’t overreact” on implementing oil production cuts when the group meets in Vienna this week, U.A.E. energy minister Suhail Mohammed Al Mazrouei told reporters Tuesday.
A surge in crude sales from Iraq to China last month bolstered the level of oil exports the Middle East’s biggest producers shipped to the Asian country, even as the spread of coronavirus erodes demand.

--With assistance from Alex Longley, Craig Torres, Grant Smith, Salma El Wardany and David Marino.

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

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Catherine Traywick, Reg Gale