Brent crude rallied more than 12 per cent on hopes of a supply deal among major oil producers led by Saudi Arabia and Russia to alleviate a price collapse triggered by the coronavirus outbreak.
US president Donald Trump said he had spoken in recent days with the leaders of Russia and Saudi Arabia and believed a deal to end a price war — that has taken Brent to the lowest level since 2002 — would be made in “a few days”.
Saudi Arabia had pushed for a deal to deepen and prolong production curbs ahead of a March meeting of oil ministers, but it was met with reluctance by Russia. This prompted Saudi Arabia to pursue a ‘pump at will’ strategy to shock the market, dramatically cutting prices for its crude and raising production to record levels.
“I think that they will work it out over the next few days . . . Both know what they have to do,” Mr Trump told a White House press conference on Wednesday, without giving any further details as to why he was so confident.
The US has put pressure on Saudi Arabia to scale back its supply surge, which has contributed to a price collapse and ricocheted across the shale patch where lots of companies are on the brink of bankruptcy. Mr Trump said he would meet with domestic oil executives to discuss measures by which to aid the industry.
Brent crude, the international oil benchmark, reached a high of $27.88 a barrel before paring gains by mid morning on Thursday to trade at $26.80 – a 8.3 per cent rise. US benchmark West Texas Intermediate which hit $22.55 a barrel, eased to $21.89 – a nearly 8 per cent gain.
Saudi Arabia and Russia still back co-operation between producer nations, yet it seems there is little sign of a strategy shift just yet. The kingdom raised production to above 12m barrels a day, its maximum level, on Wednesday.
Saudi Arabia is hiring oil tankers to carry its crude into global market and has told the state energy company to prepare for a prolonged fight. Saudi Aramco has told oilfield services contractors to be ready to provide support as it seeks to keep production at heightened levels.
People close to the kingdom say the world’s biggest oil exporter still wants a deal, despite a multi-year oil alliance between Saudi Arabia and Russia coming to an end last month. But any production curbs would need to be shared between all producers, including Russia.
“The political hurdles to any supply deal are as large as the balance problem itself,” said analysts at JBC Energy.
Some market analysts have said the demand collapse is so severe, amid global lockdowns and travel bans, that any supply cuts from major producers would have a limited impact.
The global oil industry is facing its biggest consumption hit in history as people stop using cars and flying by air, with traders forecasting crude demand could fall by as much as 25 per cent next month.
Global storage tanks are filling up fast and refiners are turning away additional barrels as demand for refined products – from gasoline to jet fuel – takes a hit.
With oil prices at these levels, analysts say companies may be forced to shut-in production. WoodMackenzie, a consultancy, says a tenth of world oil production is unprofitable with Brent crude around $25 a barrel.