(Market Watch) Oil futures ended lower on Monday, with the U.S. benchmark posting a loss of 8% after a key meeting of major crude producers, including Saudi Arabia and Russia, was tentatively shifted to Thursday, amid rising tensions between the world’s biggest oil producers over the weekend.
The Organization of the Petroleum Exporting Countries and its allies, including Russia, will convene later this week in an attempt to forge a truce and stabilize badly beaten-down energy prices after animus between Riyadh and Moscow reared up, causing a delay in a virtual gathering to Thursday from an originally scheduled Monday.
Over the weekend, Saudi Arabia and Russia became locked in a dispute, both blaming each other for the collapse in global energy prices.
“Egos and production wars and talk of global cooperation has created unprecedented volatility against a backdrop of record demand destruction from the coronavirus,” said Phil Flynn, senior market analyst at The Price Futures Group.
“Many expected that oil prices would crash after a delay in the quickly arranged OPEC plus meeting,” he said in a note. “Yet oil did not get hit as hard as some thought, in part because of conflicting reports about progress between the production foes Saudi Arabia and Russia.”
Kirill Dmitriev, chief executive officer of the Russian Direct Investment Fund told CNBC Monday that Moscow and Riyadh are “very, very close” to an oil output cut deal.
West Texas Intermediate crude for May delivery CLK20, -6.951% dropped $2.26, or 8%, to settle at $26.08 a barrel on the New York Mercantile Exchange, after front-month prices on Friday ended the week 31.8% higher — posting the largest one-week percentage rise on record, according to Dow Jones Market Data.
June Brent crude BRNM20, +0.18%, meanwhile, slipped $1.06, or 3.1%, to $33.05 a barrel on ICE Future Europe, after putting in a weekly gain of 22% on Friday.
“Forget all of the drama,” said Flynn. “The pressure is too high for OPEC plus not to cut.”
“While global oil diplomacy is crazier than ever, the truth is that price pressure, but more importantly diplomatic pressure, will force action,” he said.
Prices of crude have been mostly in free fall, plunging in March after an alliance of OPEC and other major producers, known as OPEC+, failed to agree to production cuts, and Russia and Saudi Arabia launched a price war even as the coronavirus pandemic saw demand sharply drop as airlines world-wide halted flights.
Talk of a gathering of oil superpowers comes after President Donald Trump last week said that he has suggested that a grand alliance of oil producers with Russia, Saudi Arabia, and possibly even the U.S., could be achieved.
In a Friday research report, Barclays oil analyst Amarpreet Singh said Barclays does “not think that an OPEC+ agreement will be contingent on a broader collaboration, but it would not be unprecedented for non-OPEC+ producers also to pitch in,” to help stabilize prices.
Meanwhile, “U.S. production is also expected to face significant declines even without…mandated reductions, with rigs already posting two weeks of steep losses,” said Robbie Fraser, senior commodity analyst at Schneider Electric.
“However, supply factors continue to lack the scale of what’s currently being witnessed on the demand side,” he said in a market update. “Until COVID-19’s impact on global crude demand eases, no near-term combination of supply cuts will be enough to prevent record oversupply conditions.”
Back on Nymex, prices for petroleum products finished on a mixed note after posting gains for Friday’s session. May gasoline RBK20, +2.11% added nearly 1.5% to 70.16 a gallon, but May heating oil HOK20, -0.990% shed 2.3% to $1.0457 a gallon.
May natural gas NGK20, +7.89% settled at $1.731 per million British thermal units, up 6.8%.
Baker Hughes BKR, +12.88% on Friday reported a drop of 64 in the number of total active U.S. drilling rigs.
“The bulk of that decline came from the Permian region, where associated natural gas production grew nearly 30% year-on-year in 2019,” said Christin Redmond, commodity analyst at Schneider Electric. “The strong decline in rigs may be a signal that associated gas production will begin to decline soon on falling crude production, although there will likely be a lag before production data begins to reflect it.”
Source: Market Watch
