OIL FUTURES: Crude rises ahead of key OPEC+ meet; huge pressure to deliver cuts

Crude oil futures were higher in European morning trading on expectations that a production cut will be agreed by OPEC and its allies but skepticism remains as to whether these cuts will do much to alter the state of a coronavirus-stricken oil market.

At 1030 GMT, June ICE Brent crude futures were up $1.41 at $34.25/b, while the NYMEX WTI crude contract was up $1.64 at $26.73/b.

Analysts at Norway's DBN bank said there were still much uncertainty and potential pitfalls before any agreement could be reached but added that all oil producers knew that the consequences of no deal would be brutal.

"A 10 million b/d production cut might quickly shift the oil market balance from a massive oversupply to undersupply as the lockdowns and mobility restrictions ease over the summer," they said in a note.

Kuwait's oil minister Khaled al-Fadhel told S&P Global Platts that the alliance is aiming for a global output cut pact totaling 10 million-15 million b/d, including producers outside the group, but some details still needed to be finalized.

"How much, when, what share? -- these remain topics of discussion for the meeting," the minister said. "According to the discussions and phone calls and optimistic comments I hear from my colleagues, it seems that the platform is ready to take decisions that are beneficial to both producers and consumers."

The OPEC+ meeting, to be held via webinar, is scheduled to start at 1400 GMT. It had originally been scheduled for Monday but was pushed back to give countries more time to hammer out an agreement. This will be followed by an emergency summit of G20 energy ministers on Friday.

Some analysts said there is just too much pressure on OPEC and its allies led by Russia and they have to somehow iron out a deal and not repeat the mistake the coalition made over a month ago.

There are some doubts that these cuts are a too little, too late to balance the crude market.

Ehsan Khoman, head of MENA Research and Strategy at Japan's MUFG Bank, said even if cuts were agreed they would not be enough to offset "the extent to which COVID-19 has eviscerated demand," and these curbs would only succeed in limiting the downside to prices.

"We maintain our view that the unprecedented oil price collapse is not yet over and we don't rule out Brent sporadically testing cash-costs levels below $20/b this month, but bouncing back and ending the second quarter at $32/b as COVID-19 slowly ebbs out of the market and the ballooning oversupply begins to ease," he added.

Prices have been on an upward trend after Russia said late Wednesday it would be willing to cut 1.6 million b/d from its first-quarter production level. US officials have indicated that involuntary shut-ins due to market forces could be counted as the US' "contribution" to a deal, but Russia has rejected that idea and called on the US to offer meaningful cuts

However, bulging inventories continue to weigh on the market.

Inventory levels at the major US storage hub at Cushing, Oklahoma, surged 6.42 million barrels to 49.24 million barrels last week, according to EIA data published Wednesday. The build was the largest-ever on record at Cushing, and put tank levels there at an estimated 62% of working capacity, an S&P Global Platts analysis showed.