Oil claws back some losses as producers cut output

Russian oil companies will cut output by about 19% from February levels

Oil storage silos in Serbia. Photograph: Oliver Bunic/Bloomberg

Oil storage silos in Serbia. Photograph: Oliver Bunic/Bloomberg

 

Oil clawed back its recent heavy losses as output cuts from major producers seek to stymie an unprecedented global glut.

Futures rose by almost $2 in New York to around $14 a barrel. Russian oil companies will cut output by about 19 per cent from February levels, the nation’s Energy Minister, Alexander Novak told the Interfax news agency. Even at $10 a barrel, some countries are having difficulty selling their oil, highlighting the collapse in demand globally.

There have been tentative signs of a recovery in European physical oil markets. Key pricing contracts in the North Sea and Russia have rallied in recent days, though there are still concerns that the world is on the brink of filling its storage capacity. Major producers were due to start output cuts on May 1st, but some, including Saudi Arabia, are now curbing output early.

“There is some extra bargain hunting by investors who believe that we may have seen the floor in oil prices,” said Hans Van Cleef, senior energy economist at ABN Amro. “Because of the low base, double-digit price gains or declines seem to be the new normal.”

Storage capacity is being tested as a worldwide glut of fuels and crude expands due to the destruction of demand by the coronavirus. Still, there are tentative signs of a fledgling recovery in demand. Spain’s pipeline operator saw more moderate consumption declines than the previous week, while US gasoline sales rose in the week ending April 18th, according to OPIS.

Crude prices in New York fell below zero for the first time ever last week, causing indexes and funds to shun nearby contracts, spurring further volatility.

The SandP GSCI commodity index, a popular investment product tracked by pension funds and other global investors, said it would roll all of its June WTI contracts to July on Tuesday. The cumulative effect of all the funds reshuffling their position – including the SandP GSCI Index – is that about 46 per cent of the June contract’s open interest has evaporated in the past six trading sessions. – Bloomberg