Oil prices mixed as demand shrinks, but stimulus hopes support

MELBOURNE (Reuters) – Oil prices were mixed on Thursday following three days of gains, with the prospect of rapidly dwindling demand due to coronavirus travel bans and lockdowns offsetting hopes a U.S. $2 trillion emergency stimulus will shore up economic activity.

West Texas Intermediate (WTI) crude CLc1 futures slipped 4 cents, or 0.2%, to $24.45 as of 0018 GMT, while Brent crude LCOc1 futures rose 12 cents, or 0.4%, to $27.51.

“With lockdowns in many countries, expectations of oil demand contracting by more than 10 million barrels per day (bpd) are rising. Such demand loss will increase the supply glut,” Australia and New Zealand Banking Group analysts said in a note.

The collapse of a supply-cut pact between the Organization of the Petroleum Exporting Countries (OPEC) and other producers led by Russia is set to boost oil supply, with Saudi Arabia planning to ship more than 10 million bpd from May.

“Production increases by Saudi Arabia and Russia loom, and things still look uncertain due to the ongoing price war between these two countries,” ANZ said.

U.S. crude inventories rose by 1.6 million barrels in the most recent week, the U.S. Energy Information Administration said on Wednesday, marking the ninth straight week of increases.

Products supplied, a proxy for U.S. demand, dropped nearly 10% to 19.4 million bpd, EIA data showed.

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OPEC supply curbs, U.S. measures could support oil prices near term: Goldman

(Reuters) – Supply restraint by core-OPEC producers could push second-quarter Brent oil prices up to $30 a barrel, while U.S. measures to support the market could underpin prices in the near term, Goldman Sachs said in a research note.

Citing Wall Street Journal reports that the United States was considering intervening in the ongoing Saudi-Russian price war and Texas regulators may curb oil output, the U.S. investment bank said such action would reduce global and U.S. domestic supplies.

U.S. crude oil prices rose more than $1 on Friday, extending steep gains from the previous session, after U.S. President Donald Trump said he would “get involved” in the price war at an “appropriate time”.

While any U.S. measures could support the oil market into the second half of the year, however, Goldman Sachs said accompanying supply cuts would still not be enough to offset the 8 million barrels per day (bpd) demand loss – brought about by countries slowing economic activity to halt the spread of the coronavirus which has caused nearly 10,000 deaths worldwide.

“Medium-term, the impact of such policies will depend on their political viability given the upcoming presidential election,” Goldman Sachs said in the note issued on Thursday.

U.S. production quotas could create a $5 to $10 upside to Goldman Sachs’ West Texas Intermediate price forecast of $40 to $45 a barrel in 2021, the bank said.

While a return to U.S. oil supply management policies of the 1970s and 80s would “help support prices in the third and fourth quarter above our $30 and $40 a barrel Brent forecast, they would simply replace OPEC’s artificial price support policy with another,” the bank said, referring to the Organization of the Petroleum Exporting Countries, of which Saudi Arabia is a key member.

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U.S. oil company workers make big, bad retirement bet: their own stock

BOSTON (Reuters) – Employees at the largest U.S. oil companies have lost around $5 billion in retirement savings since the end of 2018 because of outsized bets on their own slumping stock, according to a Reuters analysis of company disclosures, a trend exacerbated by the recent crash in oil prices.

The losses spread across the 401(k) plans of some 66,000 workers underscore the dangers facing employees that do not diversify their retirement investments. The issue is most pronounced at big blue-chip corporations that have historically matched worker retirement contributions in shares and whose stocks have track records of stable growth.

“A lot of people think their company’s stock is safer than an index fund,” said David Blanchett, head of retirement research at Morningstar Inc.

The biggest U.S. oil producers by market cap – Exxon Mobil Corp (XOM.N), Chevron (CVX.N), ConocoPhillips (COP.N), EOG Resources (EOG.N) and Occidental Petroleum Corp (OXY.N) – held $44 billion of 401(k) assets for some 66,000 workers at the end of 2018, 36% of which was made up of company stock, according to the filings that contain the latest available data.

By contrast, only about 6% of 401(k) assets held at U.S. corporations across all industries were invested in company stock at the end of 2016, according to the Employee Benefit Research Institute, a nonpartisan group based in Washington.

The median total return for the five oil companies’ shares, meanwhile, amounted to negative 44% since the end of 2018, with a range of negative 22% to negative 77%. That includes losses after major oil benchmarks on Monday recorded their biggest one-day percentage drop since 1991 due to a looming price war between major oil producers Saudi Arabia and Russia.

The S&P 500 index, by contrast, returned 12% since the end of 2018.

Blanchett said the losses were proof that holding big chunks of company stock in your 401(k) is a bad idea: “It doesn’t make any sense from a household finance perspective.”

He said company stock can easily accumulate in 401(k) accounts that receive matching contributions in shares, and that workers tend not to rebalance their portfolios when they get lopsided. “Ultimately, participants go where they are nudged.”

Many U.S. corporations have taken steps to reduce heavy exposure to company shares since U.S. energy company Enron’s collapse decimated the retirement accounts of its employees about 20 years ago, including by offering more diversified mutual funds and ending the practice of matching in company shares.

Chevron, for example, began matching employee retirement contributions in cash, instead of stock, in 2015 to encourage better diversification.

But workers at Chevron were near the top of the list with the most lopsided bets on company shares. Chevron’s 401(k) plan held $6.4 billion in company stock at the end of 2018, or 38% of nearly $17 billion in net assets, disclosures show.

Chevron spokesman Sean Comey said in an email: “Regular communications are sent to plan participants about the importance of investment fund diversification and the risks of investing in a single stock.”

At the top of the list, a group of nearly 29,000 Exxon workers owned $7.6 billion in company stock in Exxon’s 401(k) plan at the end of 2018, accounting for 44% of its $17.5 billion in total net assets, according to the filings.

Exxon stopped matching in company shares in 2006. But investing in company stock remains one of many investment options for employees, company spokeswoman Ashley Alemayehu said.

The company has warned workers that investing more than 20% of retirement savings in any one company or industry may not be proper diversification, according to a February fact sheet provided online by the company.

EOG, formerly part of Enron, is the outlier in the group, with only 3% of 401(k) assets in company stock.

“We encourage diversification of retirement funds and employees have ample opportunity to invest in EOG stock outside their 401K,” EOG spokeswoman Kim Ehmer said.

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Oil slumps as stock markets sink, while Saudi, UAE plan to boost capacity

NEW YORK (Reuters) – Oil prices fell 4% on Wednesday, sinking into the close of trading with renewed weakness in the stock market after the World Health Organization said the global coronavirus outbreak is now a pandemic, and as major oil producers announced plans to escalate the burgeoning price war.

Brent crude settled down $1.43, or 3.8%, at $35.79 per barrel, while U.S. West Texas Intermediate (WTI) crude ended down $1.38 or 4% to $32.98.

Risk assets tumbled throughout the day, but accelerated losses late as the number of coronavirus cases increased and numerous countries restricted travel.

“What caused the dump in oil prices in the last minutes before the oil market close was when the stock market made new lows,” said Phil Flynn, analyst at Price Futures Group in Chicago. “News on the coronavirus does not seem to be inspiring demand hopes right now.”

Both the Organization of the Petroleum Exporting Countries and the U.S. Energy Information Administration (EIA) slashed oil demand forecasts because of the coronavirus outbreak, as they now see demand contracting in this quarter.

Saudi Arabia and the United Arab Emirates announced plans to boost production capacity following the collapse of coordinated output cuts by Saudi Arabia, Russia and others. The Saudi energy ministry has directed producer Saudi Aramco to raise its output capacity to 13 million from 12 million barrels per day (bpd).

UAE national oil company ADNOC also said it would raise crude supply to more than 4 million bpd in April and accelerate plans to boost its output capacity to 5 million bpd, a target it previously planned to achieve by 2030.

“Saudi’s shock-and-awe strategy suggests to us that to bring Russia back to the negotiating table, it is serious in causing severe price and revenue pain for all oil producers,” UBS analysts said in a note.

Trading in long-dated Brent futures contracts points to expectations that supply will continue to rise. The current Brent front month contract recently traded at more than $5 below the six-month contract, the biggest discount since January 2016.

(GRAPHIC: Oil price forecasts dim after price war begins – here)

Russian Energy Minister Alexander Novak said Saudi Arabia’s plans to increase production capacity were “probably not the best option”, adding Moscow had several phone calls with OPEC and non-OPEC members, but that no partners had agreed to its proposal.

OPEC said in a monthly report that it expected global demand to rise by just 60,000 bpd in 2020, a reduction of 920,000 bpd from its previous forecast.

The U.S. Energy Information Administration (EIA) also said global oil demand is expected to dive by 910,000 bpd in the first quarter due to coronavirus outbreak.

Numerous North American producers have announced spending cuts including Occidental Petroleum Corp, Marathon Oil Corp and Diamondback Energy Inc.

“Any reduction in spending and drilling will take time to show up in actual production figures and is unlikely to mitigate the bearish impact of a massive Saudi output increase, in case the latter does happen,” oil brokerage PVM’s Tamas Varga said.

Weekly data on U.S. inventories showed little effect from the coronavirus outbreak. Crude stocks rose by 7.7 million barrels, but inventories of gasoline and diesel fell sharply, as refining runs remain at seasonally low levels. [EIA/S]

Policymakers and central banks have been taking measures to bolster their economies against disruption caused by the coronavirus outbreak, the latest being the Bank of England which unexpectedly cut interest rates by half a percentage point on Wednesday.

(GRAPHIC: Oil price dive turns up the heat on OPEC finances – here)

A worker at Equinor’s Martin Linge offshore oil and gas development has been diagnosed with the coronavirus and is being held in isolation, the Norwegian energy firm said. It said activity on the field will be reduced on Wednesday.

However, China’s independent oil refiners are cranking up production as local governments begin to relax strict measures to contain the coronavirus and fuel demand begins to recover.

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Saudi Arabia, Russia raise stakes in oil standoff

DUBAI/MOSCOW (Reuters) – Saudi Arabia said on Tuesday it would increase its crude oil supply to a record high, raising the stakes in its price war with Russia and effectively rejecting Moscow’s overtures for new talks.

The clash of the two oil titans sparked a 25% slump in oil prices on Monday, triggering panic selling and heavy losses on Wall Street’s main stock indexes, already hit badly by the coronavirus outbreak.

On Tuesday, Amin Nasser, chief executive of Saudi Aramco 2222.SE said the oil giant would increase supply to 12.3 million barrels per day (bpd) in April for customers inside the kingdom and abroad.

That’s 300,000 bpd above its maximum production capacity, indicating Aramco may also free up crude from storage.

Saudi Arabia has also agreed with Kuwait to resume output from jointly operated oilfields in the so-called Neutral Zone, production which is not accounted for under Aramco’s output capacity of 12 million bpd.

U.S. Treasury Secretary Steven Mnuchin told Russia’s ambassador to the United States on Monday that energy markets needed to stay “orderly” amid rising concerns that extra supply from Saudi Arabia and Russia could trigger bankruptcies among higher-cost U.S. shale oil producers.

Saudi Arabia has been pumping around 9.7 million bpd in the past few months. The kingdom holds hundreds of millions of barrels of oil in storage so its can supply oil above its production capacity.

Brent oil prices jumped 10% on Tuesday above $37 per barrel after Russian energy minister Alexander Novak said Moscow was ready to discuss new measures with OPEC, effectively offering an olive branch to Riyadh.

But Saudi Arabia’s energy minister Prince Abdulaziz bin Salman appeared to rebuffed the idea.

“I fail to see the wisdom for holding meetings in May-June that would only demonstrate our failure in attending to what we should have done in a crisis like this and taking the necessary measures,” Prince Abdulaziz told Reuters.

Riyadh’s unprecedented hike in crude supply follows the collapse of talks between OPEC and other producers led by Russia – a grouping known as OPEC+ – which had sought to extend their joint efforts to curb supply beyond the end of March.

Three years of cooperation among OPEC+ producers ended in acrimony on Friday after Moscow refused to support deeper production cuts to support prices hit by the coronavirus outbreak.

OPEC responded by removing all limits on its own output. Oil prices plunged as the development revived fears of a repeat of the 2014 price crash, when Saudi Arabia and Russia fought for market share with U.S. shale oil producers, which have never participated in agreed output curbs.

MEETING IN MOSCOW

Russia’s energy ministry has called a meeting with oil companies on Wednesday to discuss future cooperation with OPEC, two sources told Reuters.

Novak said Russian oil companies may boost output by up to 300,000 bpd, and that the country’s producers have the potential to increase output by 500,000 bpd.

OPEC+ has been effectively cutting production by 2.1 million bpd led by Saudi Arabia, which has been reducing its output by more than agreed.

Russia and Saudi Arabia have both accumulated vast financial cushions that will help them weather a lengthy price war.

Aramco shares were up 9.5% at 31.05 riyals at 1052 GMT, but still trading below its December IPO price of 32 riyals.

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Exclusive: U.S. sanctions have idled a quarter of Iranian oil rigs

LONDON (Reuters) – At least a quarter of Iran’s oil rigs are out of action as U.S. sanctions strangle the Islamic Republic’s vital oil industry, according to a Reuters review of financial documents and industry sources, dealing a potentially long-term blow to its oil industry.

The lack of rig activity could damage the OPEC member’s capacity to produce oil from older fields, which require continuous pumping to maintain pressure and output. That would make it difficult for Iran to raise production back to pre-sanction levels if tensions ease with the United States.

The U.S. sanctions aim to curtail Tehran’s nuclear ambitions and regional influence. They have forced Iran to slash its oil output by half since early 2018 to less than 2 million barrels per day (bpd) because refineries worldwide have stopped buying its oil.

Plummeting production and exports have deepened a recession in the country and choked the government of its main source of income. Reduced activity has forced mass layoffs in Iran’s oil sector.

The sharp fall in oil prices so far in 2020 – due to the impact of the coronavirus epidemic on global demand – will exacerbate the pain for Iran’s economy, which is also dealing with one of the biggest outbreaks of the disease outside China.

Some of Iran’s oil rigs are out of action because they can’t be repaired. Sanctions have also made it more difficult and expensive for Iran to buy and import spare parts.

Iran relies entirely on imported parts for its rigs, said Mohsen Mihandoust, a director at Iran’s Society of Petroleum Engineers. In a decade of work in oil and gas drilling in Iran, Mihandoust has never seen a spare part that was not imported, he said, and most came from the United States or Europe.

“We are still dependent on other countries,” Mihandoust said in an interview. “It is like learning to work with a TV remote control, but still having no clue how a television is made.”

Sanctions had driven up the costs of spare parts as much as five-fold, making it not feasible to repair the rigs, he added.

Iran bought dozens of new and second-hand Chinese rigs in the last decade, but the core parts of those were still American, two industry sources said.

Chinese oil rigs suited Iranian needs for the years it was under sanctions, but they “lacked the long-lasting quality of U.S. and European rigs,” said Reza Banimahd, a businessman in Tehran who works on energy projects.

A spokesperson for the office of Iranian President Hassan Rouhani declined to comment on how U.S. sanctions have impacted the nation’s oil industry.

The White House declined to comment and referred questions to the U.S. State Department, which did not respond to a request.

SHUTTING OFF THE TAP

At least 40 of about 160 oil rigs in Iran remain idle or under repair, according to a Reuters review of information from two industry sources, drilling companies’ websites and quarterly financial results.

Just under half of Iranian rigs are operated by the National Iranian Drilling Company, a subsidiary of state energy giant the National Iranian Oil Company (NIOC). NIDC has 73 onshore and offshore oil rigs – but 17 of them generate “zero income” and six rigs are only partially active, a source familiar with the company’s operations said. That compared to five inactive rigs in 2017, and four in 2016.

Neither NIDC nor NIOC replied to Reuters’ requests for comment.

The second-largest Iranian driller, private firm North Drilling Company (NDC), owns 12 rigs. Three of them are inactive. NDC did not respond to a request for comment.

The remaining 75 rigs are owned by small drilling operations firms. Reuters was unable to verify the status of all the privately-owned rigs, but two industry sources said that 20 of those rigs had been idled.

Iran has more rigs than regional rival Saudi Arabia, which has 125, according to OPEC data. But about 85 percent of the rigs in Iran’s fleet need maintenance and repair, an oil official said on state news agency IRNA in 2019. That suggests the number of out-of-service rigs is likely to continue to rise.

“With this course of events, in the next five years or so, all Iranian oil rigs will be very old and inefficient,” said Reza Mostafavi Tabatabaei.

LAYOFFS

Iranian drilling companies have also embarked on massive layoffs.

The number of employees at NDC has dropped to 2,800 in 2019 from 9,300 in 2017, according to the company’s quarterly report.

That is a big turnaround from the boom in the industry after Iran’s government came to an agreement with the administration of former President Barack Obama that ended oil and financial sanctions in 2016. The number of rigs increased to 157 from 130 following the deal.

U.S. President Donald Trump reimposed sanctions in 2018 to force Iran to accept stricter limits on its nuclear activity, curb its ballistic missile program and end its support for proxy forces in the Middle East.

(Graphic: Iran’s oil rig count – here)

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Oil prices plunge, hit by erupting Saudi-Russia oil price war

NEW YORK (Reuters) – Oil prices crashed on Monday, suffering their biggest daily rout since the 1991 Gulf War, after the collapse of an OPEC+ supply agreement that now threatens to overwhelm the world with oil, inciting panic throughout the energy sector.

After failing to come to an agreement to cut supply, Saudi Arabia and Russia over the weekend pledged instead to ramp up production, which could quickly flood global markets with oil at a time when demand has already weakened substantially.

The market’s reaction has been furious, with crude futures plunging by nearly 20%, while energy stocks collapse as shale producers frantically cut future expenditures in anticipation of a drastically different outlook than a few days ago.

Brent crude futures LCOc1 were down $8.84, or 19.5%, to $36.43 a barrel by 10:49 a.m. EDT (1449 GMT). They earlier fell by as much as 31% to $31.02, their lowest since Feb. 12, 2016.

U.S. West Texas Intermediate (WTI) crude CLc1 fell $7.81, or 18.9%, to $33.47 a barrel. WTI earlier dropped 33% to $27.34, also the lowest since Feb. 12, 2016.

Should these losses hold, it would be the biggest one-day percentage decline for both benchmarks since Jan. 17, 1991, the outset of the U.S. Gulf War, when it fell by a third.

A three-year supply pact between members of the Organization of the Petroleum Exporting Countries, which includes the group’s top producer Saudi Arabia, and Russia fell apart on Friday after Moscow refused to support deeper oil cuts to cope with the outbreak of coronavirus.

OPEC responded by removing all limits on its own production, prompting fear of a supply hike in a market already awash with crude.

Despite sliding demand for crude due to the coronavirus, Saudi Arabia plans to boost its crude output above 10 million barrels per day (bpd) in April after the current deal to curb production expires at the end of March, two sources told Reuters on Sunday. Saudi Arabia also cut its official crude selling price.

The kingdom has been producing around 9.7 million bpd in recent months.

Russia, one of the world’s top producers alongside Saudi Arabia and the United States, also said it could lift output and that it could cope with low oil prices for six to 10 years.

The countries along with several other producers have cooperated for three years to restrain supply. The OPEC+ talks collapsed after OPEC effectively presented Russia with an ultimatum on Thursday, offering it a choice of accepting a deal with much bigger than expected cuts or no deal at all.

“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” Goldman Sachs said.

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(Graphic on major oil price milestones: here)

Saudi Arabia, Russia and other major producers last battled for market share in 2014 in a bid to put a squeeze on production from the United States, which has not joined any output limiting pacts and which is now the world’s biggest producer of crude.

(Graphic: Brent crude oil prices collapse by most since 1991 as ‘OPEC+’ disintegrates here)

The global outbreak of the coronavirus prompted OPEC to seek additional output cuts. More than 110,000 people have been infected in 105 countries and territories and 3,800 have died, the vast majority in mainland China, according to a Reuters tally.

China’s efforts to curtail the coronavirus outbreak has disrupted the world’s second-largest economy and curtailed shipments to the biggest oil importer.

The International Energy Agency said on Monday oil demand was set to contract in 2020 for the first time since 2009. It cut its annual forecast by almost 1 million bpd and that the market would now contract by 90,000 bpd.

(Graphic: U.S., Russia, Saudi oil output here)

Major banks also have cut their demand growth forecasts. Morgan Stanley predicted China would have zero demand growth in 2020, while Goldman Sachs sees a contraction of 150,000 bpd in global demand.

Bank of America reduced its Brent crude price forecast from $54 a barrel to $45 a barrel in 2020.

“The radical shift in policy suggests that Saudi will allow inventories to build sharply over the next three quarters,” said a Bank of America Global Research report. “As a result, we now expect Brent oil prices to temporarily dip into the $20s range over the coming weeks.”

(Graphic: Saudi Arabia slashes key crude oil selling price here)

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Oil prices plunge by a third as Saudi-Russian pump war looms

LONDON (Reuters) – Oil prices lost as much as a third of their value on Monday in their biggest daily rout since the 1991 Gulf War as Saudi Arabia and Russia signalled they would hike output in a market already awash with crude after their three-year supply pact collapsed.

Despite sliding demand for crude due to the coronavirus, Riyadh made plans to ramp up output in April after Moscow balked at OPEC’s proposal last week for a further steep production cut. Saudi Arabia also cut its official crude selling price.

Russia, one of the world’s top producers alongside Saudi Arabia and the United States, also said it could lift output and that it could cope with low oil prices for six to 10 years.

Brent LCOc1 crude futures were down by more than 27% at $35.5 a barrel by 1340 GMT, after early dropping by as much as 31% to $31.02, their lowest since Feb. 12, 2016.

U.S. West Texas Intermediate (WTI) crude CLc1 fell by more than 27%, to $32.30 a barrel, after initially falling 33% to $27.34, also the lowest since Feb. 12, 2016.

The U.S. benchmark’s biggest decline on record was in 1991 when it also fell by a third.

“The timing of this lower price environment should be limited to a few months unless this whole virus impact on global market and consumer confidence triggers the next recession,” said Keith Barnett, senior vice president for strategic analysis at ARM Energy in Houston.

(Graphic on major oil price milestones: here)

The disintegration of the grouping dubbed OPEC+, made up of the Organization of the Petroleum Exporting Countries plus Russia and other several oil producers, ends more than three years of cooperation to support the market.

Saudi Arabia plans to boost its crude output above 10 million barrels per day (bpd) in April after the current deal to curb production expires at the end of March, two sources told Reuters on Sunday.

The kingdom has been producing around 9.7 million bpd in recent months.

(Graphic: Brent crude oil prices collapse by most since 1991 as ‘OPEC+’ disintegrates here)

Saudi Arabia, Russia and other major producers last battled for market share in 2014 in a bid to put a squeeze on production from the United States, which has not joined any output limiting pacts and which is now the world’s biggest producer of crude.

“The deal was always destined to fail,” said Matt Stanley, senior broker at Starfuels in Dubai, saying the main result of the OPEC+ pact “has been that U.S. shale producers have gained market share.”

(Graphic: U.S., Russia, Saudi oil output here)

Saudi Arabia over the weekend cut its official selling prices for April for all crude grades to all destinations by between $6 and $8 a barrel.

“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” Goldman Sachs said.

(Graphic: Saudi Arabia slashes key crude oil selling price here)

DEMAND CONTRACTION

China’s efforts to curtail the coronavirus outbreak has disrupted the world’s second-largest economy and curtailed shipments to the biggest oil importer. The virus has also spread to other major economies such as Italy and South Korea.

The International Energy Agency said on Monday oil demand was set to contract in 2020 for the first time since 2009. It cut its annual forecast by almost 1 million bpd and that the market would now contract by 90,000 bpd.

Major banks have cut their demand growth forecasts. Morgan Stanley predicted China would have zero demand growth in 2020, while Goldman Sachs sees a contraction of 150,000 bpd in global demand.

Goldman Sachs also cut its forecast for Brent to $30 for the second and third quarters of 2020.

In other markets, the dollar was down sharply against the yen, Asian stock markets sharply lower, and gold rose to its highest since 2013 as investors fled to safe havens. [MKTS/GLOB]

Chris Weafer, director at Macro-Advisory consultancy, said Russia return to cooperating with OPEC by autumn if prices remained very low as President Vladimir Putin “will be reluctant to run down financial reserves too far to fund an expanding deficit”.

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Oil rises more than 1% on smaller-than-expected rise in crude stocks

SINGAPORE (Reuters) – Oil prices rose more than 1% on Thursday, recouping losses from the previous day on a smaller-than-expected rise in crude oil inventories in the United States, although the gains were capped by uncertainties over cuts by major oil producers.

Brent crude rose by 78 cents, or 1.5%, to $51.91 per barrel by 0202 GMT, while U.S. West Texas Intermediate (WTI) was up by 69 cents, or 1.5%, at $47.47 per barrel.

Volumes were low, however, reflecting that “there is not a lot of confidence in the moves,” said Michael McCarthy, chief market strategist at brokerage CMC Markets in Sydney.

Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries (OPEC), meanwhile, struggled on Wednesday to win support from Russia to join them in additional oil output cuts to prop up prices that have tumbled by a fifth this year because of the coronavirus outbreak.

Saudi Arabia wants extra cuts of 1 million to 1.5 million barrels per day (bpd) for the second quarter, and to keep existing cuts of 2.1 million bpd in place until the end of 2020.

“If OPEC+ settles with something in the middle of the Russian request of no change in cuts and the 1.5 million Saudi goal, that might not be enough to keep prices supported here,” said Edward Moya, senior market analyst at broker OANDA.

“OPEC+ needs to send a strong message and anything below 1 million barrels in deeper production cuts will send oil prices sharply lower.” 

Supporting oil prices, U.S. crude stocks rose modestly in the latest week, while U.S. oil exports surged to more than 4 million barrels a day for the first time since December, suggesting a rise in overseas demand. [EIA/S]

Geopolitical tensions in the Middle East also boosted prices. The Saudi-led coalition fighting in Yemen said it had foiled an attack on an oil tanker off Yemen’s coast on the Arabian Sea, the Saudi state news agency SPA reported on Wednesday.

Still, the global spread of the coronavirus has crushed hopes for stronger growth this year and will hold 2020 global output gains to their slowest pace since the 2008-2009 financial crisis, International Monetary Fund Managing Director Kristalina Georgieva said on Wednesday.

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Oil rises $1 as OPEC, allies work on big output cut

LONDON (Reuters) – Brent oil prices rose on Wednesday on expectations that major producers have moved closer to an agreement to enact deeper output cuts aimed at offsetting the slump in demand caused by the coronavirus outbreak.

Brent crude LCOc1 was up by $1.11, or 2.1%, at $52.97 a barrel at 1234 GMT.

U.S. West Texas Intermediate (WTI) CLc1 was up by 93 cents, or 2%, at $48.11 a barrel.

Saudi Arabia and other OPEC members are seeking to persuade Russia on Wednesday to join them in large additional oil output cuts to prop up prices which have tumbled because of the coronavirus outbreak.

“With demand-side uncertainties having already dragged Brent futures about 19 percent lower since the start of the year … oil’s upside appears significantly capped amid persistent concerns over the coronavirus outbreak,” said Han Tan, market analyst at FXTM.

(Graphic: OPEC production vs. world demand here)

A technical panel of several representatives from OPEC states, Russia and other producers recommended on Tuesday cutting output by between 0.6-1.0 million barrels per day (bpd) during the second quarter only.

Iran’s oil minister Bijan Zanganeh said the market was facing a surplus.

“There is no doubt that there is an imbalance in the supply and demand of oil. Right now, the supply in the market is greater than demand,” Zanganeh said. “It’s necessary for OPEC and non-OPEC to make all their efforts to balance the market.”

Goldman Sachs again cut its Brent price forecast, to $45 a barrel in April, while expecting Brent gradually recovering to $60 a barrel by the year-end.

The bank said while an output cut by OPEC “will help normalize oil demand and inventories later this year, they can’t prevent an already started large oil inventory accumulation.”

Morgan Stanley also cut its second-quarter 2020 Brent price forecast to $55 per barrel and its WTI outlook to $50 on expectations that China’s 2020 oil demand growth would be close to zero and that demand elsewhere may weaken because of the virus.

(Graphic: Crude prices fall as coronavirus cases rise here)

The U.S. Federal Reserve cut interest rates on Tuesday in a bid to shield the world’s largest economy from the impact of the coronavirus, but the decision offered only limited support for crude.

“Yet far from easing virus anxieties, the surprise move had the opposite effect. Market players fretted over the suddenness of the Fed’s decision,” said Stephen Brennock of oil broker PVM.

U.S. crude oil inventories rose in the most recent week, while gasoline and distillate stocks fell, data from industry group the American Petroleum Institute showed on Tuesday.

Crude inventories rose by 1.7 million barrels in the week to Feb. 28 to 446.6 million barrels, compared with analysts’ expectations for a build of 2.6 million barrels.

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