Oil continues its climb as an output deal draws nearer

LONDON (Bloomberg) --Oil resumed gains on signs that the world’s biggest producers are moving toward a deal to end their price war and cut output as the coronavirus eviscerates energy demand.

Futures in New York rose 3.6% to trade near $27 a barrel. Saudi Arabia and Russia are closing in on an output deal, according to people familiar with the matter. They plan talks with other OPEC+ countries on Thursday before a G-20 meeting of energy ministers Friday. In the U.S., President Donald Trump’s top energy official said he had a productive discussion with his Saudi counterpart.

While the talks still face significant obstacles, not least agreeing on numbers everyone can live with and potential U.S. involvement, the bigger question is whether any deal will be enough given the extent to which the virus is destroying demand. Stockpiles at the U.S. storage hub of Cushing, Oklahoma, may have risen the most last week since at least 2004, while Indian buyers are looking to cancel some April and May oil shipments.

“Judged by the bout of optimism reflected in prices of oil futures in recent days, the market is still not realizing the severity of the oversupply problem coming in April-May,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.

Prices:

• West Texas Intermediate rose 3.6% to $27.03 a barrel as of 10:49 a.m. London time
• Brent advanced 2.5% to $33.89 a barrel

An effective deal will require all of the three top producers -- the U.S., Saudi Arabia and Russia -- to participate. While Riyadh and Moscow are set to cut output significantly, according to people with knowledge of the negotiations, Washington is more likely to offer up gradual reductions. The G-20 may be a more acceptable forum to bring on board the U.S. and other big producers outside the OPEC+ alliance, such as Canada and Brazil.

Meanwhile, some old-guard Texas oil drillers are urging state regulators to clamp down on crude output. The largest U.S. oil-producing state hasn’t restricted production in almost 50 years but a growing chorus of explorers and related industries are advocating just such a move.

Other oil-market news

• Oil refineries in China, the world’s biggest crude importer, may increase processing rates to near last year’s average levels this month, providing a glimmer of hope to a global market reeling from the coronavirus.
• If rock-bottom crude prices and threats from President Donald Trump aren’t enough to force Moscow into cutting production, the country’s limited number of oil tanks might do the job.
• U.S. gasoline demand has collapsed as stay-at-home orders keep drivers off the road, following the pattern seen in the hardest-hit parts of Europe.