Oil up as anticipation of production cut grows

Oil prices built on the momentum from the previous session as the price war between Russia and Saudi Arabia seems to be nearing a truce.

Russia said overnight that it was willing to reduce output by around 1.6 million barrels daily, or 15%. The announcement saw WTI futures surging almost 12% as the session closed.

International Brent Oil futures rose 2.62% to $33.7 by 10:19 PM ET (3:19 AM GMT) and US Crude Oil WTI futures jumped 3.71% to $26.02.

As the oil industry continues to grapple with a supply glut, with the COVID-19 pandemic shrinking demand, Russia’s declaration comes at an opportune time. The Energy Information Administration (EIA) said overnight that the US crude oil inventory increased by 15.2 million barrels for the week ending April 3, against analyst expectations of a 9.37-million-barrel build.

The American Petroleum Institute (API) also estimated a build of 11.9 million barrels yesterday.

Investors are waiting to see if Russia will hold to its word at <a href=’https://staging.theenergyyear.com/companies-institutions/opec/’>OPEC+’s virtual meeting later in the day.

“The coming extraordinary producing-countries meeting is the only hope in the horizon for the market that could prevent a total price collapse and production shut-ins,” Rystad Energy’s head of oil markets Bjornar Tonhaugen told CNBC.

“At the moment, prices are so volatile that any news or leaks about the direction of the negotiations could move them [prices] either way. As you have seen in recent days, price swings from gains to losses and back are not unusual in such times,” he added.

But some investors took a more skeptical view.

“OPEC+ is trying mightily to cobble together a sizable production cut, and they are in full spin mode to try and rally prices,” Again Capital’s John Kilduff told CNBC.

“[OPEC’s meeting] will be a make-or-break moment for the oil market. The math on a 10 million barrel per day cutback, which is the minimum necessary to stabilize the situation, is almost impossible to compute. I expect a bad day for OPEC+ tomorrow,” he added.