Oil is trading above $31 a barrel in London Friday, reversing earlier declines, as OPEC+ scheduled an urgent meeting next week after a historic slump in prices that has crippled the energy sector.
The price surge which follows US President Donald Trump statement that he he expected Saudi Arabia and Russia to cut oil supplies by as much as 10 million barrels a day, provides much reprieve to countries like Nigeria worst hit by the scramble for bigger market share among the top producers.
Brent, the internationally traded benchmark crude is trading at $31.33 while the US grade WTI sold for $25.53 a barrel after pairing earlier losses.
Oil traders said they expect the coalition that includes OPEC and Russia to hold a meeting by video conference on Monday, though it’s still not clear who will attend, according to delegates.
News of the plan came just hours after U.S. President Donald Trump saidhe expected global producers including Saudi Arabia and Russia to cut more than 10 million barrels of production, triggering the biggest ever jump in prices on Thursday.
Oil futures had been trading lower earlier Friday in Europe on growing doubts over Trump’s claim, with Citigroup Inc. and Goldman Sachs Group Inc. saying any supply deal would anyway be too little, too late as demand craters due to efforts to stem the coronavirus.
But the market is interpreting next week’s meeting as a crucial step closer to some sort of deal that could help address the collapse in prices.
The virtual meeting will be open to all producers, not just those that are part of the OPEC+ alliance, according to the delegates.
While Trump tweeted Thursday that he had spoken to Saudi Crown Prince Mohammed bin Salman, who had in turn spoken with Russian president, a person familiar with the situation said the U.S. president’s goal is purely aspirational and will ultimately hinge on whether Riyadh and Moscow can reach a deal.
“Even if there is an agreement to curtail 10 million barrels a day of output, the fundamentals show demand destruction and inventory builds,” said John Driscoll, chief strategist for JTD Energy Services Pte in Singapore,” he added.
The outlook for the physical market remains bleak as discounts for some grades of physically delivered oil across the U.S. and Canada widened.
Brent had fallen over 50 percent since January with the coronavirus-driven lockdowns in China, Europe and the United States leading to fallen oil demand.
The global oil price crash is setting up a bleak second quarter for many nations including countries like Nigeria whose economies are heavily dependent on oil receipts. Nigeria is particularly vulnerable.
Its fiscal and monetary buffers are non-existent today and it does not have capacity to join in the dog fight for market share following years of neglect and huge capital flight away from its oil industry.
So this comes as cheering news for Nigeria, already feeling the squeeze by the price war and the outbreak of coronavirus. Nigeria has offered its biggest export crude grades, Qua Iboe and Bonny Light, at a discount of $3 below the benchmark, yet it was struggling to find buyers for its April cargoes.
With lower oil revenue, the economy is reeling, squeezing resources to fight the pandemic and keep government functioning. The Federal Government has almost exhausted the excess crude account and external reserves have fallen below $36 billion, touching its lowest levels in 30 months.
This complicates the task of the Central Bank of Nigeria which is trying to resuscitate the economy. It had devalued the naira leaving official exchange rate at N360/$1 and it would change at N380 per dollar at the Investors and Exporters (I&E) forex window.
The Federal Government has also reviewed downward the benchmark price of crude oil and cut 20 percent recurrent and capital expenditure of the budget to assuage fallen oil incomes.
If the agreements stick and output caps are restored, Nigeria will have resources to combat COVID-19, pay government workers and restart the economy after the pandemic is over.
The outsized nature of Nigeria’s government means that dwindling revenue has dire consequences for the economy as government’s inability to finance critical projects and make budgetary disbursement would shrink the economy and crimp private enterprises who rely on government contracts.
“The market is hoping that this US intervention will bring us closer to an agreement between Saudi and Russia in cutting production,” said CMC Markets analyst Margaret Yang, adding that bargain hunting is also lifting oil prices.
Neil Wilson, chief market analyst at Markets.com, believes that talk of a truce in the oil price/supply war is lifting sentiment, but he “cannot help but sense a dead cat bounce”.
“Trump always claims he is close to a deal,” said Wilson, in a morning note. “From what we can glean from the chatter, Russia is not raising output but the Saudis are not backing off and have increased output to record levels.”
Trump also said he had invited American oil executives to the White House to discuss revival measures which would aid the oil industry that is hurt by a slump in demand due to both the coronavirus outbreak and the price war.
The oil strategy meeting would include CEOs from Exxon, Chevron, Occidental Petroleum, Devon Energy, Phillips 66, Energy Transfer Partners and former Continental Resources CEO Harold Hamm, according to CNBC. The collapse in prices has threatened the once-booming US drilling industry with bankruptcies and significant layoffs and Washington has scrambled for ways to protect the sector.
With markets facing 15 million barrels per day (bpd) of oversupply in the second quarter and storage maxing out in April, extraordinary curtailments of oil supply will be needed in May and June, said Kang Wu, head of Asia analytics at S&P Global Platts. Saudi Arabia supports cooperation between oil producers to stabilize the market but Russia’s opposition to a proposal last month to deepen supply cuts has caused market turmoil, a senior Gulf source familiar with Saudi thinking told Reuters.
The Kingdom of Saudi Arabia raised its oil production to its maximum level on Wednesday: above 12 million barrels per day. The world’s biggest oil exporter supports a deal for stabilization, but production cuts would have to be shared among all oil producers, including Russia.
The Trump administration is pursuing several avenues to convince Riyadh and Moscow to back down from the price war.
Speaking at a government meeting on Wednesday, Russia’s President Vladimir Putin said that both oil producers and consumers should find a solution that would improve the “challenging” situation of global oil markets.
Goldman sees around 20 million barrels a day flowing into storage in April, while IHS Markit expects the world will run out of space to store oil by the middle of the year.
