Oil futures rose in electronic trade early Thursday as investors awaited the outcome of a crucial meeting of OPEC and its allies that is intended to end a price war between Russia and Saudi Arabia.
Investors bid the price of crude up on Wednesday in anticipation of a pact between the oil-producing behemoths, which could result in daily cuts by members of the Organization of the Petroleum Exporting Countries and their allies of 8 million to 10 million barrels per day over 90 days, according to experts.
Investors are expecting that U.S. shale producers also will agree to some level of output reductions as a part of a pact.
“A positive outcome for oil prices from the OPEC+ meeting would be a global agreement to cut output beyond OPEC and Russia,” wrote Stephen Innes, chief market strategist at AxiCorp in a late-Wednesday note. “That would require cuts from the U.S., and smaller non-OPEC producers,” he wrote.
June Brent crude BRNM20, +0.63% picked up 52 cents, or 1.6%, to trade at $33.36 a barrel after closing 3% higher on the day.
Although the virtual meeting is expected to formalized more tentative agreements, there remains the potential for drama.
A gathering in early March broke down spectacularly after OPEC’s most influential member, Saudi Arabia, and nonmember Russia failed to strike an accord on cuts — leading to an internecine clash that accelerated a crushing move lower in the price of U.S. and international-grade oil.
This time the stakes feel higher yet.
“If the cartel fails to secure a meaningful deal that ends the current price war, oil could end up tumbling back to levels not seen in 17 years, around $20,” said Lukman Otunuga, senior research analyst at FXTM.
On the other hand, “a positive outcome to the meeting should offer some light at the end of the tunnel for oil, opening the path toward $40,” he told MarketWatch.
Both benchmarks have lost more than half of their values so far this year.
The meeting itself is being conducted via videoconference due to the deadly COVID-19 pandemic that has wreaked havoc on oil markets and the global economy. The price war between Moscow and Riyadh magnified the woes for the crude industry.
The decline in demand has led to expectations the global storage capacity will soon fill up. Rystad Energy said its analysis shows that total commercial oil storage in the U.S. stands at about 653.4 million barrels, or some 780 million barrels including pipeline fills and crude that is in transit.
The downward drift on prices also has punished U.S. shale oil producers and threatens to decimate debt-laden oil-and-gas producers if prices aren’t stabilized soon.