Oil, which recorded the biggest gains of one day in the previous session, fell on Friday, looking skeptical to the rhetoric of US’s brokering between Saudi Arabia and Russia to reduce production.
Brent crude futures fell 3.2%, or 97 cents, to $28.97 per barrel as of 0636 GMT, after having soared 21% on Thursday.
West Texas Intermediate (WTI) crude futures fell 4.1%, or $1.04, to $24.28 a barrel, after having surged 24.7% on Thursday.
With the worsening of the coronavirus pandemic, global oil demand is projected to drop by 18-20% or 18-20 million barrels a day in the second quarter. Unprecedented growth in approximately 1 billion barrels of inventory within two months.
It is hard to form an agreement equation to settle the Saudi-Russian price war without the participation of other major producers. It is even more difficult for such an agreement to happen fast enough and cause helpfull effects to balance the market during these deep economic recession days caused by the coronavirus pandemic.
The U.S.’s ingenious offer is that the two countries could reduce production by 10 to 15 million barrels (bpd) per day. That is, an unprecedented amount representing 10% to 15% of global supply. However, no offers are made to cut US production.
In other words, the USA will not demand a coordinated cut in production from domestic oil companies. It will wait for the details of the cuts that Saudi Arabia and Russia will compromise.
It is inevitable that a cut may put some pressure on the global oil storage shortage. Depletion of storage capacity means the collapse of the oil market, which has been suffering the biggest economic shock since World War I.
Meanwhile, it is likely that Russia is looking for a ground of a relief out of the Washington’s sanctions.
Saudi Arabia called on Thursday for an urgent meeting of OPEC and non-OPEC oil producers, saying it aims to reach a fair agreement to balance the oil markets.
Looking at the above and the general economy, there is no point in which producers can reliably undertake major cuts and control oil prices at reasonable levels, eliminating doubts. Even if an agreement is reached, it will take time to achieve the necessary coordination and implementation.
A statement Friday said that the OPEC + group oil producers meeting is scheduled for April 6, all OPEC + countries are expected to participate, and stable prices in the oil markets would be discussed.