Crude rises on OPEC+ output cut hopes despite uncertainty over scale, US involvement

Singapore — 0321 GMT: Crude oil futures were higher in mid-morning trade in Asia Thursday on hopes of a production cut emerging from the OPEC+ webinar meeting slated for later in the day, which were tempered by doubts over whether the scale of the cut could fully compensate for the COVID-19 demand destruction, as well as the extent of US involvement in the talks.

At 11:21 am Singapore time (0321 GMT), June ICE Brent crude futures were up 49 cents/b (1.49%) from Wednesday's settle at $33.33/b, while the NYMEX May light sweet crude contract was 72 cents/b (2.87%) higher at $25.81/b.

"The important outcome from these meetings will be signaling constructive supply-side behavior as the global economy and oil demand recover from the pandemic," AxiCorp chief market strategist Stephen Innes said in a note Thursday.

This view was shared by IG market strategist Pan Jingyi, who noted that while the meeting indicated the urgency of the situation, whether the scale of cuts agreed would be sufficient was another matter.

"The participation from the other non-traditional OPEC+ countries such as Canada and Brazil does spell the urgency on hand," she said in a note Thursday. "Without any substantial cuts here, the risk remains tilted to the downside given the overwhelming issue of frail global energy demand into Q2," she added.

Analysts say that even if production cuts of up to 15 million b/d are agreed on at the meeting, it would still fall short of the more than 20 million b/d cut needed to balance the market in Q2.

Another key consideration is the involvment of the US. In most circumstances, US antitrust laws would prevent producers from joint action to prop up prices, and US officials have been quoted as saying that US oil output would fall of its own accord, without mandated action, S&P Global Platts reported earlier.

However, such is the urgency of the situation that analysts believe US non-involvment alone will not prevent the talks from going ahead, or bearing fruit. "The US may well remain absent according to consensus," Pan added in her note.

Innes concurred, noting at this stage, OPEC may have to set aside personal pride. "The market appears to be running on the view that OPEC is willing to give the US a pass as members have by now come to the realization the risk of credibility loss outweighs any semblance of saving face at this point," he added.

US crude oil inventories rose 15.2 million barrels to 484.4 million barrels in the week ended April 3, Energy Information Administration data released late Wednesday showed..