By Peter Nurse
Investing.com - Oil markets edged higher Wednesday ahead of the weekly update on U.S. oil inventories, with investors feeling confident that the world's main oil producers will agree to cut output on the back of the dramatic cut in demand and prices following the coronavirus outbreak.
AT 9:25 AM ET (1335 GMT), U.S. crude futures traded 3.2% higher at $24.39 a barrel, while the international benchmark Brent contract was up 0.7 at $32.09. Both contracts were trading above $60 at the start of the year.
The Organization of the Petroleum Exporting Countries (OPEC) and allies, including Russia, are scheduled to meet Thursday, to discuss cutting supply to try and balance a market which has been hit by an unprecedented hit to demand on the back of the lockdown measures taken globally to curtail the coronavirus.
This meeting is expected to be more successful than their gathering in March, which ended in a failure to extend supply cuts and a price war between Saudi Arabia and Russia.
"The coming extraordinary producing-countries meeting is the only hope on the horizon for the market," said Bjornar Tonhaugen of Rystad Energy.
"Nobody wants to go short ahead of what could be a 'positive surprise' by OPEC++."
This will be followed Friday by a get together by the G20 oil ministers, including those of major oil producing nations Canada, Mexico, Brazil and the U.S.
Market expectations are building for an agreement for an output reduction of around 10 million barrels per day, but this may depend on whether U.S. producers play ball.
The U.S. Department of Energy said on Tuesday U.S. output was already declining, without government action, while the EIA stated that U.S. crude production is expected to slump by 470,000 barrels per day in 2020.
“The big question is whether the likes of Russia will accept a cut from the U.S. in this form rather than a mandated cut,” said ING, in a research note. “If so, this would mean that U.S. cuts would only feed through into the market gradually, and for now, it does seem as though this would be the only type of reduction the US would be willing to accept. Mandated cuts would likely mean no deal.”
That said, it’s debatable whether a cut of 10 million barrels a day would be enough to balance the market when even OPEC is estimating that demand will fall by almost 12 million barrels over the second quarter of 2020.