LONDON (Reuters) – Oil prices edged lower on Tuesday, with investors apparently unconvinced that record supply cuts could soon balance markets pummeled by the coronavirus pandemic, though a predicted plunge in U.S. shale output provided some support.
FILE PHOTO: Oil pump jacks work at sunset near Midland, Texas, U.S., August 21, 2019. REUTERS/Jessica Lutz
Brent LCOc1 futures fell 25 cents, or 0.8%, to $31.49 a barrel by 0825 GMT after settling 0.8% higher on Monday. U.S. West Texas Intermediate (WTI) crude CLc1 was down 22 cents, or 1%, at $22.19, having dropped 1.5% in the previous session.
The Organization of the Petroleum Exporting Countries (OPEC), along with Russia and other producing countries – a grouping known as OPEC+ – agreed over Easter to cut output by 9.7 million barrels per day (bpd) in May and June, equating to about 10% of global supply before the coronavirus outbreak.
Additional output cuts by the United States, the world’s biggest producer, and other nations outside the OPEC+ group will take the estimated total reduction to about 19.5 million bpd.
Yet oil prices remain down by more than 50% this year.
“OPEC+ cut volumes are too small to counter the peak impact coming from the demand side,” JBC Energy said in a note.
Inventories, where available, are expected to fill up fast even as some countries among the G20 group of nations agreed to buy oil for their national reserves.
Rystad Energy’s head of oil markets, Bjornar Tonhaugen, noted that implementing the unprecedented international deal would be a logistical challenge requiring weeks at least.
“Reducing upstream supply is not just turning off the tap or pushing a button. We would be surprised to see overall OPEC+ compliance at 50% through May,” he said.
Still, U.S. production is falling in tandem with a drop in prices and there are signs that the coronavirus outbreak may have peaked in some areas of the world.
In China, where the virus started and is now largely under control, demand appears to be returning, data shows that crude oil imports rose 12 percent in March from a year earlier.
Supporting prices, U.S. shale oil output is expected to register the biggest monthly drop on record this month, the U.S. Energy Information Administration (EIA) said on Monday.
Production has been sliding for several months, but the declines are expected to accelerate sharply in April with a loss of nearly 200,000 bpd of production, the EIA said.
Reporting by Noah Browning and Aaron Sheldrick; Editing by David Goodman