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Hind Al Soulia - Riyadh - Oil prices remained buoyant as markets braced themselves for the possibility of production cuts following signs from Russia it is ready to enter a new deal.
Moscow, whose reluctance to deepen production cuts last month led to the expiration of the Opec+ alliance pact at the end of March, said it could cut as much as 1.6 million barrels per day, or the equivalent of 15 per cent of its output.
Russia's possible contribution is nearly as much as the collective Opec+ deal that was in place for three months from January 1.
Brent futures were trading up 3.56 per cent at $34.01 per barrel at 5.22pm UAE time, while the West Texas Intermediate benchmark was up 4.54 per cent at $26.23 per barrel.
The possibility of a deal has boosted markets, which rounded off the worst quarter on record last week after oil prices lost 70 per cent of their value from their most recent peak in January. A crunch in demand from a near two-month lockdown in China, the early centre of the coronavirus pandemic, prompted early calls for action from Saudi Arabia.
Russia's scepticism over a need to deepen cuts delayed action at the Opec+ meeting in March, with the two sides eventually abandoning output curbs and deciding to increase supply. As prices plunged and US shale producers and refiners facing job losses or bankruptcies, President Donald Trump urged Opec and other producers to cut as much as 15m bpd to stabilise markets.
Global oil demand is expected to contract as much as 24m bpd in April, according to London-based consultancy Facts Global Energy.
UBS expects demand for the current quarter to collapse by 20m bpd, or the equivalent of a 20 per cent reduction year-on-year.
The investment bank expects markets to remain oversupplied in the second quarter in spite of any supply reduction by producers as long as restrictions on movement remain in place in many countries.
Production curbs could slow a build-up in the level of inventories, which have threatened to overwhelm available global storage capacity by May, the bank added.
Saudi Arabia and the UAE, which pledged to bring 12.3m bpd and 4m bpd to markets respectively in April, will continue to honour their obligations to customers for the month.
"Any agreed production cuts by oil producers will probably only start in May, " said Giovanni Staunovo, commodity analyst at UBS.
"This will likely see crude inventories increasing sharply in May as well, considering the time it takes (weeks to months) to send crude on oil tankers from producer to consumer states," he added.
The bank expects Brent and WTI to average $20 per barrel in June, with the benchmarks expected to pick up to $43 and $40 per barrel by December.
The US, the world's largest producer, Brazil, and Norway are expected to be part of discussions in the G20 virtual meeting of energy ministers on Friday.
The interface would mark the first time the US will join any kind of production restriction discussion. It remains unclear how its energy industry, which is made up of thousands of independent producers, is likely to contribute to any reduction.
Russia has insisted on US participation or at least the removal of sanctions on some of its state-backed trading firms. Mr Trump, who initially brokered new talks between Moscow and Riyadh, has since walked back on his comments, even threatening tariffs against oil imports from other producers.
Any global co-ordinated supply cut would only succeed in limiting the downside to prices "ostensibly carving out an artificial oil price floor", said Ehsan Khoman, head of Mena research and strategy at Japanese bank MUFG. The deal is only expected to contain the collapse in prices rather than boosting them significantly, he added.
The bank doesn't rule out Brent going below $20 per barrel this month but, expects the benchmark to revive up to $32 per barrel in the second quarter as the pandemic slows down and concerns over crude oversupply begin to ease.
On Thursday Kristalina Georgieva, the managing director of the International Monetary Fund, said the meeting of producers reduces uncertainty in the markets.
"We have seen a collapse in commodity prices and we’re working expeditiously to provide emergency financing to Nigeria Having less uncertainty in this time helps," she told Bloomberg TV. Anything that can be done to help bring more predictability in the oil markets is helpful."
Updated: April 9, 2020 05:43 PM
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