Oil drops over $1 on oversupply after OPEC+ delays meeting

Andrew Cummings
April 6, 2020

Benchmark Brent crude has plunged 48% this year.

Late last week, prices surged, with United States and Brent contracts posting their largest ever weekly percentage gains due to hopes that OPEC and its allies would strike a deal to cut crude supply worldwide by at least 10 million barrels per day (bpd).

Referring to the two countries, Trump told reporters at the daily White House coronavirus briefing "If they don't get along, I would do tariffs, very substantial tariffs, I would absolutely do that", adding that he intends on protecting the U.S. oil industry.

Unidentified diplomats told Bloomberg News that Saudi Arabia, Russia and other big producers that are racing to negotiate a deal had made some progress on Sunday.

Oil diplomats are trying to stitch together a meeting of G-20 energy ministers for Friday, part of an effort to bring the US on board, according to two people familiar with the situation. With the Saudis now ramping up production to record levels, U.S. President Donald Trump has said suppliers are open to reducing production once again to take 10 million to 15 million barrels of unwanted crude off the market.

However, Per Magnus Nysveen, head of analysis at Rystad Energy, told Reuters that decline in global demand for oil because of the coronavirus pandemic and the global lockdowns was affecting oil prices more than the proposed output cuts by the OPEC+ alliance.

Opec and allies led by Russian Federation, a group known as Opec+, are due to hold a meeting on Thursday to discuss a new pact on curbing output and ending a price war between Saudi Arabia and Russian Federation that has prompted US President Donald Trump to weigh in.

Brent crude LCOc1 traded lower by 2.39 USA dollars a barrel, or 7 percent, by 6:16 p.m. EDT (10:16 GMT) after earlier touching a session low of 30.03 US dollars a barrel.

Saudi Arabia and Russian Federation have said privately they were unlikely to implement cuts if US producers also cut production. "Very substantial tariffs. I would absolutely do that", Trump said April 5 during a press conference, adding he wanted to protect the USA oil industry, the world's largest by production. When oil prices started dropping last month, Trump initially emphasized it would be good for motorists. When it comes, the decision may affect about 14 million barrels a day of exports from the Persian Gulf because other producers in the region often follow Aramco's lead in setting prices for their own shipments.

Trump has, however, made no commitment to take the extraordinary step of persuading US companies to cut output.

Oil prices could also firm as decades-low prices have already forced producers to cut output, CMC's McCarthy said. The difference is huge: the kingdom pumped 9.8 million barrels a day on average between January and March.

Any agreement will require diplomatic agility at a time when nations are devoting massive resources to fighting the pandemic itself.

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